LG Electronics beat last year's full-year operating profit in the first half. Although the refund of tariffs paid on U.S.-bound shipments was reflected as a one-time revenue, operating profit in the second quarter roughly doubled from a year earlier even without it. Analysts said the shift from a home appliances and TV-centered business to higher-margin areas that generate recurring revenue—such as subscriptions, platforms, vehicle components and heating, ventilation and air conditioning (HVAC)—is paying off.
LG Electronics said in a filing on the 7th that, on a consolidation basis, second-quarter revenue was 23.8297 trillion won and operating profit was 1.5788 trillion won, based on preliminary figures. From a year earlier, revenue rose 14.9% and operating profit jumped 146.9%. Both revenue and operating profit were the highest for any second quarter.
This was a "surprise result" that far exceeded market expectations. According to FnGuide, the second-quarter consensus for LG Electronics was revenue of 22.6184 trillion won and operating profit of 1.074 trillion won.
Second-quarter revenue rose 0.4% from the previous quarter, while operating profit fell 5.7%. The second quarter typically brings higher marketing expenses and cost pressures than the first, but the profit decline was kept to single digits. It was the first time in two years, since the first and second quarters of 2024, that LG Electronics posted operating profit in the 1 trillion won range for two straight quarters.
For the first half, revenue was 47.5569 trillion won and operating profit was 3.2525 trillion won, up 9.4% and 71.3%, respectively, from a year earlier. In particular, first-half operating profit was more than 770 billion won higher than last year's full-year figure of 2.4784 trillion won. The company swiftly improved from a fourth-quarter loss last year driven by expenses for a voluntary retirement program and weakness in the TV business.
◇ Tariff refund around 300 billion won… LG Innotek lends support
LG Electronics proceeded with the refund process for tariffs paid on U.S. exports last year and recognized the confirmed amount as a one-time revenue in the second quarter. Brokerages see the revenue impact at around 300 billion won.
Even after a simple deduction, LG Electronics' second-quarter operating profit would be in the high 1.2 trillion won range. That is roughly double the operating profit of 639.4 billion won a year earlier. The operating margin excluding the estimated refund is about 5.4%, 2.3 percentage points higher than 3.1% a year earlier.
Yang Seung-su, an analyst at Meritz Securities, said in a report the same day, "The core of the surprise result is the tariff refund effect, but considering price hikes and subscription-appliance growth in HS (home appliances) and expanding sales of high-margin infotainment in VS (vehicle components), we judge that the profitability of the core business is also being maintained solidly."
LG Electronics also reflected expenses from a voluntary retirement program carried out in April in its second-quarter results as part of workforce structure efficiency efforts. While the tariff refund was a nonrecurring revenue that lifted profit, the voluntary retirement was a one-off expense that lowered profitability. The company said it minimized the expense impact through improved cost competitiveness and a companywide emergency management system.
Strong results at consolidated subsidiary LG Innotek also contributed to LG Electronics' second-quarter earnings surprise. Brokerages estimate LG Innotek added operating profit of around 190 billion to 200 billion won on a consolidation basis in the second quarter. A favorable won-dollar exchange rate, solid iPhone sales, and improvements in optical solutions and substrate businesses were seen as positive factors.
LG Innotek has a large share of its business in optical solutions supplying camera modules for Apple iPhones. A higher exchange rate increases the won-converted value of export revenue, and as sales of high value-added products expand, profitability improves further.
◇ Appliance profitability gains led results… TV appears to have stayed in the black
On the 30th, LG Electronics will release final results and disclose performance by business headquarters, including Home Solution (HS), Media & Entertainment Solution (MS), Vehicle component Solutions (VS), and Eco Solution (ES; HVAC).
Brokerages view the HS division as the center of second-quarter improvement. The division's second-quarter results are estimated at revenue in the high 6 trillion won range and operating profit in the 700 billion won range. In addition to peak-season demand for air conditioners, premium product sales and pushes into the mass market delivered results, while growth in subscription appliances and management of logistics and materials and supplies costs helped defend profitability.
The MS division, which oversees the TV business, posted an operating loss in the 750 billion won range for the full year last year but swung to profit in the first quarter. In the second quarter, sales of premium products such as organic light-emitting diode (OLED) TVs and Micro RGB, improvements in cost structure, and inventory management appear to have aided the recovery. Brokerages estimate the MS division maintained a profit in the second quarter with revenue around 5 trillion won and operating profit of 30 billion to 40 billion won.
In particular, the market sees the webOS-based advertising and content business—the operating system (OS) that runs smart TVs—as becoming a key profit source for the MS division. Because additional revenue can be generated even after a TV is sold once, profit volatility is lower than for hardware.
The vehicle components division is estimated to have posted revenue around 3 trillion won and operating profit in the low-to-mid 200 billion won range. As demand grows for infotainment systems that integrate navigation, music, video and communications functions in vehicles, the larger backlog appears to have increased revenue stability.
For the ES division, analysts say profitability improved as the HVAC business expanded its footprint, centered on overseas markets. Brokerages estimate the division posted second-quarter revenue around 2.7 trillion won and operating profit in the low 200 billion won range.
LG Electronics is nurturing artificial intelligence (AI) data center cooling solutions as a next growth pillar. Brokerages say quality certification procedures for North American big tech clients are in the final stages, and contributions to results could begin within six months to a year after testing is completed. For liquid cooling, the coolant distribution unit (CDU) is also undergoing quality verification for AI graphics processing unit (GPU) clients.
Kim Min-gyeong, an analyst at Hana Securities, said, "While short-term solid results from the tariff refund and profit base improvement through cost efficiency are emerging, the full-fledged launch of new businesses such as data center cooling systems and Robotics will act as a driver for stock gains in the second half."