LG Elec. sees tough road ahead after record earnings in Q1

LG Electronics Inc., the world’s top home appliances maker, expects business conditions to deteriorate in the second quarter amid higher costs due to various factors such as the war in Ukraine and surging inflation even as the company reported record earnings for the previous three months.

The South Korean electronics giant on Thursday said its operating profit rose 6.4% to an all-time high of 1.9 trillion won ($1.5 billion) on a consolidated basis in the first quarter from a year earlier thanks to royalty income. Its sales jumped 18.5% to 21.1 trillion won during the January-March period on strong demand for its premium products such as the LG Objet Collection lineups.

Analysts had forecast its operating profit and sales at 1.4 trillion won and 20 trillion won, respectively.

LG, however, offered a gloomy outlook for the current quarter, saying external circumstances aggravated the business conditions.

“The business environment is expected to worsen in the second quarter as sustained uncertainties such as geopolitical issues, worries about inflation, a volatile foreign exchange rate and supply chain risks are likely to raise costs including expenses for raw materials and logistics,” the company said in a statement.

After the gloomy outlook, LG’s share ended up 0.84% at 120,500 won, underperforming a 1.08% gain in the wider Kospi.

LG will focus on profitability to deal with those bearish factors by strengthening its dominance in the global premium home appliances market.

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Its home appliance and air solution (H&A) division posted 8 trillion won ($6.3 billion) in sales for the three months ending March 31, up 18.8% on-year, according to its earnings statement. Demand for its premium products grew across the world, especially in developed markets such as North America and Europe.

Sales from LG’s Home Entertainment division, which makes TVs, rose 1.4% to 4.1 trillion won on sustained demand for high-end models such as organic light-emitting diode (OLED) TVs.

LG expects the appetite for premium TVs to stay intact even as competition in the global TV market is likely to intensify on the decline in overall demand. Such demand for the high-end TVs will help the division report similar revenue in the second quarter as it did in the first, it added.

LG is the world’s largest OLED TV manufacturer, accounting for two-thirds of the global shipments.

The vehicle component solutions (VS) division’s revenue grew 8.5% to 1.9 trillion won on healthy sales of electric vehicle powertrains, as well as automotive infotainment and lighting systems.

LG predicts the global auto parts industry to remain under pressure from the ongoing automotive chip shortage.

Write to Nam-Young Kim at nykim@hankyung.com
Jongwoo Cheon edited this article.