LG Electronics beat market expectations in the third quarter this year despite the U.S.-driven tariff setback. While profitability in its core home appliance business was expected to deteriorate due to higher materials and supplies costs from tariffs on steel derivative items, analysts say the company minimized the negative impact through a supply chain optimization strategy, while its vehicle component business, a new growth engine, posted record-high profitability.
LG Electronics disclosed on the 13th that, on a consolidation basis, its tentative third-quarter sales came to 21.8751 trillion won with operating profit of 688.9 billion won. Sales and operating profit fell 1.4% and 8.4%, respectively, from a year earlier. However, operating profit exceeded the market's earlier forecast by 10%, and sales were the second highest for any third quarter on record.
◇ Home appliances defended profitability with premium strategy and production base optimization
In the industry, a negative view dominated the outlook for LG Electronics' second-half results this year. As the U.S. government's 50% tariff on steel derivative items took full effect, unit costs for materials and supplies for refrigerators, washing machines and air conditioners rose. In the United States, the largest market, consumer sentiment weakened due to finished goods price hikes from the tariff impact, and imports of home appliances have continued a double-digit decline throughout the year.
Throughout this year, LG Electronics has worked to minimize the impact of tariffs by overhauling its operations across production, operations and marketing. LG Electronics said, "The home appliance business continues to face tariff burdens on volumes exported to the United States and delayed recovery in global demand, but it is maintaining dominance in the premium market and delivering stable performance in the volume zone," adding, "We will continue efforts to minimize the impact of tariffs through optimization of production base operations and resource allocation, and the subscription business that combines products and services is steadily growing."
However, the Media Solutions (MS) division, which handles the TV business, is presumed to be inevitably in the red. Domestic securities firms analyzed that the TV business, which posted an operating loss of 191.7 billion won in the second quarter, recorded a similar level of loss in the third quarter. While sluggish demand in the global TV market has continued, competition has intensified due to Chinese companies' push of low-priced TVs based on liquid crystal display (LCD), making revenue improvement difficult.
Park Sang-hyun, an analyst at Korea Investment & Securities, said, "The MS division is expected to remain in the red this quarter as well, due to increased marketing expense amid intensified competition with Chinese manufacturers, despite a slight drop in LCD panel prices. WebOS, categorized as a qualitative growth area, could see its sales grow 20% to 30% year over year this year, but that will likely be insufficient to offset the slump in the TV hardware (HW) business."
◇ Profitability up for new growth engines such as vehicle components and B2B
It is a positive sign that profitability improved in vehicle components and business-to-business (B2B) operations such as heating, ventilation and air conditioning (HVAC), which LG Electronics has fostered as next-generation growth drivers. As their contribution to overall sales and operating profit continues to rise, they are increasingly likely to support a stable performance portfolio compared with TVs and home appliances, where market uncertainty is high.
LG Electronics said, "The vehicle component business is expected to have recorded record-high profitability in the third quarter of this year," adding, "Expanded sales of premium products in the in-vehicle infotainment business significantly contributed to profitability." The business model is being diversified from products to in-vehicle content platforms. Lamps and electric vehicle drive components are also speeding up business structure efficiency, making stable growth likely going forward on the back of a large order backlog.
The HVAC business is analyzed to have strengthened profitability by focusing on commercial air-conditioning systems and industrial and power-generation chillers. LG Electronics plans to continue expanding the business's potential, as results are becoming visible with large-scale orders for solutions such as AIDC (AI data center) cooling in global markets including North America, Central and South America, the Middle East and Asia.