LG Electronics expects 'impressive' Q1 profit

Models pose with LG Electronics' new Whisen ThinQ air conditioners, Tuesday. The company said the 2020 model has an upgraded filter cleaning feature. / Courtesy of LG Electronics

By Kim Yoo-chul

LG Electronics said Tuesday it was expecting to report an operating profit of 1.1 trillion won for the first three months ended March 31, up 21.1 percent from a year ago mostly thanks to cost-saving efforts and better-than-expected sales in home appliances and televisions.

In its preliminary earnings results for the first quarter of this year, LG said it was predicting to report consolidated sales of 14.7 trillion won with an operating profit of 1.1 trillion won. LG beat earlier market expectations. Sales were cut by 1.2 percent year-on-year, despite its whopping increase in the quarterly operating profit amid the global spread of the COVID-19 pandemic. Earlier thoughts were LG had been expected to generate an operating profit of 850 billion won during the latest quarter.

In the statement, LG said details regarding each of its business units will be announced officially later this month. Company officials declined to comment over its recent preliminary earnings.

But the group-wide cost-saving efforts, a relatively weak South Korean won and stable demand for its home appliances and TVs were considered as the “right factors” to help LG Electronics cushion the blow from the coronavirus pandemic on smartphones ― the company's longtime dilemma.

During the first quarter, LG has been continuing restructuring and cost-reduction efforts of its smartphone business. But these efforts weren't enough to offset LG Electronics' already weakened market position in the already structurally slowing smartphone market.

Analysts said LG Electronics will continue to face fiercer competition and struggle to recover its global presence in smartphones, making a possible return to profitability in this business division difficult to envisage both in the short and medium term.

LG was thought to have maintained its strong position in home appliances, including freezers, washing machines and air conditioners, during the first quarter as it has already diversified product profiles and strengthened brand value in key markets where the firm is competing with its chief Chinese rivals.

“Out of the total operating profit that LG reported during the first quarter of this year, its home appliances business was believed to be responsible for 73 percent,” an analyst at Shinhan Financial said. Its television business benefited from the struggles of Chinese TV brands in the wake of the coronavirus pandemic and increased sales of premium OLED TVs.

“LG Electronics fared well for the sale of large OLED TVs, while it also cut the spending for promotional campaigns amid the COVID-19 pandemic. Simply, a growing contribution from high-margin OLED TVs supported LG's overall TV profitability,” said Park Kang-ho, an analyst at Daishin Securities.

But LG's smartphone business extended its losing streak in terms of profits for the 20th straight quarter due to a delay in its flagship models and less demand for LG-manufactured phones, said Kwon Seong-ryeol, an analyst at DB Securities. He added that LG's handset unit was expecting to report an operating loss of 240 billion won during the latest quarter.

“The second quarter will matter for LG given LG's greater exposure in North America and Europe. A delay for the opening of the Tokyo Summer Olympics would also hurt LG's planned marketing campaign because large sporting events are considered as a booster for tech companies,” he said, adding LG's recent decisions to close its factories in India, the United States and Russia would also affect its profitability in the current quarter.