LG Electronics forecasts third-quarter profit plunge on Bolt recall
LG Electronics forecast that operating profit fell by nearly half in the third quarter on year due to the expenses incurred in the Bolt electric vehicle (EV) recall, despite record revenue.
In an earnings guidance announced on Tuesday, the electronics company estimated its operating profit was 540.7 billion won ($450.8 million), down 49.6 percent on year, after subtracting 480 billion won for the recall provision.
Sales in the July-September period were the highest in the company’s history, a record 18.8 trillion won, up 22 percent on year, as demand for digital appliances was strong during the quarter.
The operating profit dipped far below the market estimate of 1.1 trillion won, while sales beat the estimate of 18.2 trillion won, according to market tracker FnGuide.
LG Electronics, which supplies the cells for battery modules, will absorb 1.4 trillion won of recall expenses with LG Chem, the parent of LG Energy Solution, a battery maker.
LG Chem provisioned 620 billion won in the third quarter and 91 billion won in the second quarter.
LG Electronics provisioned 234.6 billion won in the second quarter.
Asked if the company could face more recall-related expenses in the future, an LG Electronics spokesperson said that “the possibility remains low.”
A statement provided by LG Energy Solution said that the total recall provision cost could change depending on circumstances.
Analysts said higher sales of premium-range home appliances was the main factor boosting the quarterly revenue.
LG Electronics “benefited from the strong sales of high-end home appliances, a trend that could mitigate the worries that demand for televisions and other products will shrink next year,” said Kim Dong-won, an analyst at KB Securities.
The premium products include organic light emitting diode (OLED) televisions and Objet Collection refrigerators and washing machines that comes in customized colors and designs.
Shares of LG Electronics rose by 3.33 percent to close at 124,000 won Tuesday, while LG Chem jumped by 4.19 percent to close at 796,000 won.
Kim said that the LG Electronics announcement detailing the recall costs eased uncertainties surrounding the recall scandal, improving investor sentiment.
“The shares of LG Electronics declined 21.8 percent over the past three months, affected by the uncertainties associated with the recall costs,” Kim said, “As the short-term risk has been eased, LG Electronics stock will rebound.”
BY PARK EUN-JEE [email@example.com]