LG Electronics' Strong Performance Amid COVID-19 Crisis, Real Challenge Lies in Q2 (Comprehensive)

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[Asia Economy Reporter Changhwan Lee] LG Electronics announced a surprise earnings report for the first quarter. Despite the economic downturn caused by the COVID-19 pandemic, profitability improved in key business sectors such as home appliances and TVs.

On the 7th, LG Electronics reported consolidated sales of KRW 14.7278 trillion and operating profit of KRW 1.0904 trillion. Compared to the same period last year, sales decreased by 1.3%, while operating profit increased by 21.1%.

The operating profit margin (7.4%) was the highest ever recorded for a first quarter, and this is the second time that first-quarter operating profit has exceeded KRW 1 trillion.

Looking at the performance by business division, the H&A (Home Appliance & Air Solution) division, mainly responsible for home appliances, achieved sales of KRW 5.418 trillion and operating profit of KRW 753.5 billion. Although sales slightly decreased, operating profit and operating profit margin reached record highs for a quarter.

Sales slightly declined compared to the same period last year as overseas sales dropped due to the impact of COVID-19, despite strong sales of steam appliances such as dryers, stylers, and dishwashers in the domestic market driven by increased customer interest in health and hygiene. However, for the second consecutive year, first-quarter sales exceeded KRW 5 trillion.

Operating profit increased by 3.6% year-on-year, supported by expanded sales of premium products and cost reductions. The operating profit margin was a record high of 13.9% for a quarter.

The HE (Home Entertainment) division, responsible for TVs, posted sales of KRW 2.9707 trillion and operating profit of KRW 325.8 billion. Sales decreased by 4.8% year-on-year, but operating profit increased by 31.7%.

Sales declined compared to the same period last year due to business suspensions or reductions by major clients in North America and Europe, but strong sales of premium products such as OLED TVs and cost efficiency measures like cost reduction helped achieve an operating profit margin of 11.0%. This is the second time since 2018 that the first quarter recorded a double-digit operating profit margin.

The MC division, responsible for smartphones, recorded sales of KRW 998.6 billion and an operating loss of KRW 237.8 billion. Sales dropped 33.9% year-on-year due to supply disruptions from Chinese ODM (Original Design Manufacturer) partners caused by COVID-19 and the closure of some retail stores in Europe and Latin America. Although costs were reduced through production site efficiency and decreased marketing, operating losses continued due to the decline in smartphone sales.

LG Electronics is consistently pursuing business structure improvements through global production site efficiency, platformization and modularization strategies, and cost reduction.

The VS division, focused on automotive components, posted sales of KRW 1.3193 trillion and an operating loss of KRW 96.8 billion. Sales decreased by 2.1% year-on-year due to reduced sales in electric vehicle parts and the lamp business of its subsidiary ZKW. The suspension of factory operations by automakers in North America and Europe due to COVID-19 led to sales disruptions and operating losses.

Additionally, the BS division recorded sales of KRW 1.7091 trillion and operating profit of KRW 212.2 billion. Sales increased by 3.5% year-on-year due to higher sales of IT products such as laptops and solar modules. Operating profit rose 26.3% year-on-year, supported by sales growth and stable profitability in information displays.

◆ The real challenge is the second quarter, when the impact of COVID-19 intensifies = The uncertainty of the global economy is expected to increase further in the second quarter due to the impact of COVID-19. Accordingly, LG Electronics anticipates that sales and profitability in the second quarter will decline compared to the previous quarter and the same period last year.

The global home appliance market is expected to continue experiencing demand stagnation, intensifying competition among appliance manufacturers. The H&A division plans to thoroughly monitor market conditions, secure additional sales opportunities such as expanding online sales, and ensure profitability through optimized resource allocation and cost structure improvements.

The TV market is expected to see a significant demand decline due to cancellations of global sports events. The HE division plans to defend against profitability decline by expanding the proportion of premium products such as OLED TVs and operating resources efficiently.

The smartphone market is expected to face a sharp demand decrease due to the spread of COVID-19, intensifying competition among smartphone manufacturers. LG Electronics plans to launch the mass premium smartphone ‘LG Velvet’ in the second quarter, provide differentiated customer value, and strengthen its affordable lineup in line with the expansion of the 5G market. The company will also expand online sales to increase sales opportunities and continue cost efficiency efforts based on platformization and modularization strategies.

The global automotive industry is expected to see a sharp drop in demand for automotive parts due to factory shutdowns by major automakers. The VS division plans to continue supply chain management (SCM) operations and business structure improvements, considering the reduced demand from automakers.

The B2B business is expected to see expanded business opportunities for laptops, monitors, and information displays due to the expansion of non-face-to-face activities, telecommuting, and remote education amid the impact of COVID-19.

This content was produced with the assistance of AI translation services.