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(2nd LD) LG Electronics delivers Q1 earnings surprise, virus fallout looms

All News 16:01 April 07, 2020

(ATTN: CHANGES headline, lead; ADDS more info from 13th para, photo)

SEOUL, April 7 (Yonhap) -- LG Electronics Inc. on Tuesday delivered an earnings surprise in the first quarter of the year, apparently aided by solid performance from its home appliance business, but analysts warned that the company could face a severe impact from the novel coronavirus during the current quarter.

South Korea's No. 2 electronics firm estimated its first-quarter operating profit at 1.09 trillion won (US$891 million) for the January-March period, up 21.1 percent from a year ago.

It marks the company's best quarterly performance since the first quarter of 2018.

The figure was far above the market consensus of 874 billion won in operating profit in the survey conducted by Yonhap Infomax, the financial arm of Yonhap News Agency, on 11 Korean brokerage houses.

In its earnings guidance, LG expected its first-quarter sales at 14.7 trillion won in the three-month period, down 1.2 percent from a year earlier.

The figure was slightly lower than the median estimate of 15.5 trillion won.

This photo taken Jan. 30, 2020, shows the corporate logo of LG Electronics Inc. at the company's office building in Seoul. (Yonhap)

LG, the world's leading OLED TV maker, did not break down performances of its respective business divisions, saying it will announce the detailed earnings later this month.

Analysts here said LG's home appliance business may have logged solid earnings in the first quarter and offset some losses in its mobile and vehicle solutions units amid the novel coronavirus crisis.

"LG's home appliance & air solutions division may have racked up solid revenue in sanitary appliances, such as air purifiers and vacuum cleaners, in the first quarter, while revenues from overseas and the rental business may have also increased," said Choi Bo-young, an analyst at Kyobo Securities. "There also has been steady demand for its premium TV products."

However, LG's mobile business was projected to stay in the red for 20 consecutive quarters as the global smartphone market was hit by the COVID-19 crisis.

LG was scheduled to unveil its new smartphones at the Mobile World Congress (MWC) in Spain in February, but the plan has been scrapped after the world's largest mobile trade show was canceled due to the novel coronavirus pandemic.

"Due to a delay in the launch of new mobile devices and poor sales, LG's mobile communications division may post an operating loss of over 200 billion won in the first quarter," said Kwon Sung-ryul, an analyst at DB Financial Investment.

This photo provided by LG Electronics Inc. shows the company's air purifiers. (PHOTO NOT FOR SALE) (Yonhap)

Despite surprising first-quarter performance, analysts said that LG's operating profit could plunge in the second quarter as the company is likely to feel a severe pinch from the COVID-19 crisis as the disease spreads across advanced markets like the United States and Europe where it sells most of its home appliances and TVs.

"In the first quarter, a slump in IT demand was concentrated in China, which only accounts for 5 percent of LG's total revenue," Park Hyung-woo, an analyst at Shinhan Financial Investment, said. "From end-March, we are seeing demand decline in other regions. It looks inevitable for LG to suffer a drop in the second-quarter earnings."

Shares in LG Electronics spiked 6.65 percent to close at 54,500 won on the Seoul bourse, outperforming the benchmark KOSPI's 1.77 percent increase. The company's first-quarter earnings guidance was released before the market close.


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