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LG Electronics Q2 earnings tipped to be tepid on pandemic: analysts

Consumer Electronics 14:12 June 29, 2020

By Joo Kyung-don

SEOUL, June 29 (Yonhap) -- LG Electronics Inc., a major home appliance maker in South Korea, is likely to suffer a sharp decline in its second-quarter earnings due to the novel coronavirus pandemic, analysts here said Monday, although it is expected to rebound from the third quarter.

LG was expected to log 13.19 trillion won (US$10.9 billion) in sales in the April-June period, down 15.59 percent from a year earlier, while its operating profit was estimated to plunge 34 percent on-year to 430 billion won over the period, according to the data compiled by Yonhap Infomax, the financial news arm of Yonhap News Agency.

This photo provided by LG Electronics Inc. on June 15, 2020, shows the company's OLED TV products at a store overseas. (PHOTO NOT FOR SALE) (Yonhap)

LG expected weak second-quarter earnings, citing the impact of the COVID-19 pandemic on advanced markets, like the United States and Europe. The South Korean tech firm is scheduled to announce its second-quarter earnings guidance next week.

Despite weak earnings outlook for the current quarter, analysts have been revising their outlook for LG in recent weeks, citing that the company's home appliance sales may decline less sharply than expected.

"Due to lockdowns and demand decline in the U.S. and Europe, it is inevitable for the company to see a drop in the B2C sector in the second quarter," Roh Kyoung-tak, an analyst at Eugene Investment & Securities, said. "However, the company's poor performance caused by the pandemic is likely to be short-lived."

Analysts said LG's second-quarter performance will be relatively sound compared with other home appliance makers since the company made a quick recovery on home turf.

Models promote LG Electronics Inc.'s home appliance products at a store in Seoul on June 29, 2020. (Yonhap)

"As the domestic market, which accounts for 30 percent of the company's home appliance sales, relatively have rebounded from the pandemic impact, demand for its home appliances appears to have been solid," Kim Rok-ho, an analyst at Hana Financial Investment, said. "Decline in TV sales is also estimated to be smaller than expected."

LG's struggling mobile business was expected to narrow its operating loss from the first quarter due to a decline in fixed costs. LG posted an operating loss of 237.8 billion won in the first quarter from its mobile business.

However, its vehicle solution unit was projected to see operating losses widen as global auto sales suffered severely from the pandemic.

Analysts predicted that LG's performance is likely to improve in the second half of the year as major economies introduce stimulus measures to boost consumer spending, while demand for its premium home appliance products is rising.

Kim Ji-san, an analyst at Kiwoom Securities, said, "Demand in the U.S. and Europe could return to last year's level in July."

LG, the world's No. 1 OLED TV maker, was also expected to log better earnings from its TV business as it is expected to see increased supply of OLED display panels from its affiliate LG Display Co.

This photo taken on May 19, 2020, shows LG Electronics Inc.'s new smartphone, the Velvet, at a store in Seoul. (Yonhap)

Quick recovery in TV demand in North America following the lifting of virus lockdowns is also promising, analysts said.

"Considering deferred demand that was put on hold in the first half due to the pandemic, it is likely that demand for large size TVs continues through the fourth quarter," Kim Dong-won, an analyst at KB Securities, said. "It is estimated that LG and Samsung's TV business have hit the bottom in the second quarter, raising expectations that they will be able to see improved earnings in the second half."

kdon@yna.co.kr
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