LG Electronics Surpasses 2 Trillion KRW in Cumulative Operating Profit... Record Q3 Performance (Comprehensive)

[Asia Economy Reporter Dongwoo Lee] LG Electronics recorded its highest-ever sales and operating profit for the third quarter this year. The increase in pent-up demand due to the COVID-19 pandemic and better-than-expected sales of TVs and home appliances drove the improvement in performance.

LG Electronics announced on the 30th that its operating profit for the third quarter reached 959 billion KRW, a 22.7% increase compared to the same period last year. Sales rose 7.8% to 16.9196 trillion KRW during the same period. This sales figure was the second highest among all quarters, following the fourth quarter of 2017 (16.9636 trillion KRW).

Home Appliances Lead Performance, Mobile and Vehicle Components Reduce Losses

By business division, the Home Appliances (H&A) sector led overall performance. In the third quarter of this year, the home appliances division recorded sales of 6.1558 trillion KRW and an operating profit of 671.5 billion KRW, pushing cumulative operating profit for the first three quarters of the year past 2 trillion KRW. LG Electronics stated that premium new appliances such as the Styler, dryers, and dishwashers achieved strong sales.

The home appliance market, which had been sluggish in the first half due to COVID-19 mobility restrictions, saw pent-up demand in the third quarter supported by subsidies in North America, Europe, and other regions.

The operating profit margin for the H&A division in the third quarter was 10.9%, marking three consecutive quarters this year with double-digit margins. This is the first time in history that the third quarter operating profit margin has reached double digits.

The TV (HE) division recorded sales of 3.6694 trillion KRW and an operating profit of 326.6 billion KRW, driven by strong performance of premium TVs such as OLED and NanoCell.

Although rising LCD panel prices posed a burden, LG stated that increased 'stay-at-home' demand and growth in online (non-face-to-face) sales due to COVID-19, which reduced marketing costs, contributed to improved results.

LG Electronics’ sore spots, the Mobile Communications (MC) and Vehicle Components (VS) divisions, also reduced their losses in the third quarter. The MC division’s operating loss was 148.4 billion KRW, improving by over 50 billion KRW compared to the second quarter loss of 206.5 billion KRW. The reduction in losses was attributed to increased sales of mid-range and entry-level products.

The Vehicle Components division (VS), which produces automotive parts, posted an operating loss of 66.2 billion KRW in the third quarter, improving by more than 150 billion KRW compared to the second quarter loss of 202.5 billion KRW. The normalization of operations at global automakers, which had been sluggish in the first half, and increased vehicle sales in the third quarter contributed to this improvement. The BS division recorded an operating profit of 77 billion KRW.

Entering Year-End Peak Season... Expectations for Strong Q4 Performance

LG Electronics plans to continue strong performance in the fourth quarter by securing profitability.

The company noted that although the pace of real economic recovery is slow and risks from economic volatility remain due to renewed mobility restrictions amid concerns over COVID-19 resurgence, the spread of non-face-to-face trends is expected to create new business opportunities driven by changes in consumer behavior.

LG Electronics aims to turn the crisis into an opportunity by strengthening global brand awareness. It also plans to expand online business and continue increasing sales of health management appliances and OLED TVs.

The global home appliance market is expected to see intensified competition within the industry as it enters the year-end peak season, despite demand not reaching pre-pandemic levels due to the prolonged COVID-19 situation. The H&A business division plans to maintain double-digit sales growth compared to the same period last year, led by new appliances, and secure profitability above last year's level through optimized resource allocation.

The TV market is also expected to face intensified competition during the year-end peak season. The HE business division anticipates achieving profitability above last year's level by increasing sales of premium products such as OLED TVs, NanoCell TVs, and large-sized TVs, while expanding online sales and managing resources efficiently.

The global 5G smartphone market is expected to grow significantly. The MC business division plans to expand sales by strengthening its 5G entry-level lineup, focusing on key markets such as North America and Latin America, while consistently pursuing business structure improvements.

The automotive market is gradually recovering, with high growth expected particularly in connectivity and electric vehicle parts businesses. The VS business division plans to maximize sales through thorough supply chain management and secure profitability by improving cost structures.

Demand for IT products such as laptops and monitors continues to increase due to the spread of non-face-to-face trends, but demand for information displays and solar modules is expected to shrink as investments decline and price competition intensifies. The BS business division plans to actively respond to sales opportunities for IT products, expand sales of strategic products such as premium digital signage, and strengthen product competitiveness of solar modules.

The industry also views LG Electronics’ fourth-quarter outlook positively. Profitability has improved as the proportion of online sales has increased, and home appliance sales are expected to remain steady. Upcoming major home appliance retail events such as the US Black Friday are also raising expectations for strong performance.

Dongwon Kim, a researcher at KB Securities, said, "We estimate that LG Electronics’ global TV distribution inventory for the fourth quarter is below the appropriate inventory level (6-8 weeks). Compared to last year's fourth quarter TV distribution inventory (10 weeks), it has decreased to less than half, so the possibility of increased inventory management costs in the fourth quarter is very low."

He added, "LG Electronics’ smartphone inventory is also only about 50% compared to last year, so the possibility of expanded losses is limited. Accordingly, operating profit for the fourth quarter is expected to reach 551.6 billion KRW, a 442% increase compared to the same period last year, marking the highest performance for a fourth quarter."

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