LG Electronics Inc. (LGERF.PK) reported Wednesday a significant growth in its third-quarter profit, boosted mainly by strong gains from foreign exchange and affiliates. Quarterly sales, on a parent basis, grew 14.2%, and consolidated sales climbed 23.5%, driven particularly by rising demand for flat panel TVs and strong handset sales growth. Looking ahead, for the fourth quarter, the South Korean consumer electronics and mobile communications company expects modest year-on-year and sequential sales growth, but lower sequential profitability.
On a parent basis, third-quarter net profit was 807 billion won or US$650 million, up from 25 billion won a year earlier. The latest quarter results included foreign exchange gain of 71 billion won or US$57 million, and equity method gain of 368 billion won or US$297 million from overseas subsidiaries and affiliates. LG Display, in which LG Electronics owns a 37.9% stake, recorded an equity method gain of 210 billion won or US$169 million in the quarter.
Recurring profit, equal to pre-tax profit from continuing operations, on a parent basis was 1.027 trillion won or US$828 million, up from 34 billion won in the year-ago quarter. Operating profit rose 70% to 603 billion won or US$486 million from 338 billion won in the prior year, and EBITDA grew 47% to 752 billion won from 511 billion won in the previous year.
On a sequential basis, LG Electronics' third-quarter net profit, on a parent basis, fell 30% from 1.146 trillion won or US$888 million and recurring profit dropped 27% from 1.408 trillion won or US$1.09 billion reported in the second quarter.
The company's quarterly sales, on a parent basis, grew 14.2% to 7.87 trillion won or US$6.34 billion from prior year's 6.89 trillion won. Domestic sales dropped 2.4% year-over-year to 1.70 trillion won, while export sales climbed 19.8% to 6.17 trillion won.
On a consolidated basis, total sales for the quarter climbed 23.5% to 18.86 trillion won. Global sales, based on LG Electronics Korea and overseas subsidiaries, rose 15.7% to 13.90 trillion won or US$11.2 billion from 12.01 trillion won in the prior year. LG Display sales surged 54.7% to 5.97 trillion won, and sales from Other Affiliates grew 18.2% from last year to 1.31 trillion won.
Sequentially, parent sales fell 7.2% from second-quarter's 8.48 trillion won, or US$6.57 billion, and global sales dropped 4.1% from 14.497 trillion won, or US$11.23 billion, while LG Electronics' total consolidated sales in the quarter edged up 1.1% from second quarter's 18.66 trillion won.
Consolidated operating profit in the third quarter was 850 billion won or US$685 million, up from 570 billion won last year. Operating margin was 6.1%, 1.3 percent point higher than 4.8% in the third quarter last year.
While announcing the second-quarter results back in July, LG Electronics had stated that it expects third-quarter sales to grow more than 10% from last year and aims to maintain profitability at prior year's level, as demand for LCD TVs and mobile phones continues to expand. LG projected constant growth in handset and TV, and noted that it actively copes with changes in the global economy and competition environment.
Segment-wise, third-quarter global sales from Home Entertainment grew 23.9% to 4.93 trillion won or US$3.97 billion from prior year's 3.98 trillion won, boosted by strong product leadership and rising demand for flat panel TVs amid the peak season. The company attributed the higher segmental profitability to increased sales, structural improvements in the plasma display panel business and generally stable profitability in all six business divisions in the segment as a result of its cost competitiveness drive.
In the Mobile Communications, quarterly sales rose 21.9% to 4.65 trillion won or US$3.75 billion from 3.82 trillion won a year ago. Handset sales accounted for 4.38 trillion won or US$3.53 billion of the total segmental sales, up 24.8% from the previous year. Shipments of handsets grew 37% year-over-year to 31.6 million units, driven by robust growth in emerging and European markets, mainly on products such as Cookie and messaging phones, despite a slight decline in unit sales in North America and Korea. The company noted that price erosion, along with increased sales of low-end handsets, resulted in sequentially lower profitability in the quarter.
Home Appliance sales rose 11.9% year-over-year to 2.52 trillion won or US$2.03 billion in the third quarter, mainly on recovery of demand in emerging markets. On a US dollar basis, sales were down 4%. Business Solutions segment also recorded a 2.6% rise in sales to 1.21 trillion won or US$973 million, as a result of increased demand, with higher sales and stable prices contributing to greater profitability. Meanwhile, global sales from Air Conditioning segment fell 13.4% from last year to 851 billion won or US$686 million due to the global recession.
Among others in the sector, Dutch electronics giant Royal Philips Electronics NV (PHG) last week reported that its profit for the third quarter more-than tripled from last year to 176 million euros or 0.19 euros per share, boosted by lower one-time charges, despite a 11% drop in sales to 5.62 billion euros. A positive currency impact of 2% was offset by portfolio changes, the company noted. Comparable sales were down 11%, mainly attributable to Consumer Lifestyle and Lighting, however, improved from a 19% drop recorded in the preceding second quarter.
Panasonic Corp. (PC) is slated to release its second-quarter results on Friday, October 30. While announcing a first-quarter net loss of 61.36 billion yen or 25.58 yen per basic share, and a 26% drop in sales to 1.596 trillion yen, the Japanese consumer electronics manufacturer had revised upwards its forecast for the first half of the year, citing the market recovery of general electronic components and effects of economic stimulus measures, despite ongoing price competition. Panasonic also expects that the outlook for global economy will continuously be uncertain for this second quarter onward.
South Korean conglomerate Samsung Electronics Co. Ltd. (SSNLF.PK) recently said that it expects to report a sharp increase in third-quarter operating profit, which is now expected to be about 4.1 trillion won, with an estimated range between 3.9 trillion won and 4.3 trillion won. Consolidated sales are expected to be about 36 trillion won, within a range between 35 trillion won and 37 trillion won. In the previous year, the company had reported operating profit of 1.48 trillion won and revenue of 30.27 trillion won, on a consolidated basis. Samsung has been witnessing increase in demand for its televisions and mobile phones and a stronger dollar also must have helped sales. Additionally, prices of chips and flat screens have increased of late.
Looking ahead for the fourth quarter, LG Electronics said that it expects modest sales growth on both quarter-over-quarter and year-over-year basis, as it is entering the peak season for TV. Price erosion in the TV and handset business and an increase in marketing/R&D investment will likely result in sequentially lower profitability, the company said.
The company noted that TV makers in general are expected to face stronger competition, as economic slowdown is getting improved and holiday season is approaching, while the company is in full preparation for high season with improved product line-up including borderless TV and through aggressive marketing.
In the Mobile Communications segment, steady growth in the market is expected due to seasonality, and the company expects sequential growth in shipment, and to expand investment in smartphone development and emerging markets.
In the Home Appliance, market demand for durable goods is projected to pick up in emerging countries such as China and India in the fourth quarter. The company said it would focus on recovering back to pre-recession sales level and strengthen brand awareness through aggressive marketing.
Despite the recession, market demand and sales for Air Conditioning are expected to pick up in Asia, Africa, and CS America, and highly efficient CAC products will lead growth. LG also projects to expand its market share in Korea, and southern hemisphere led by the world's most energy-efficient commercial air conditioner, as well as LG's inverter-embedded room air conditioners and commercial radiators.
In the Business Solutions segment, developed markets are expected to see steady demand rise in the quarter, and emerging markets are expected to post continuous growth, while LG projects to maximize sales through launching new products and strengthen partnerships to enhance sales.
LGERF.PK last traded on February 6 at $0.445.
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