Good morning, and welcome to the 2nd Quarter 2019 Earnings Discussion. With me today, I have Theresa Freiber, our CFO, and Sophie Arneos, our Head of Investor Relations. Let's go into the business overview and start with the second quarter highlights. In the quarter, performance was solid with good price momentum and continued strong focus on innovation. Mix continued to be positive driven by good traction of our innovative premium products in the market.
Volumes declined mainly due to the private label business in North America. This resulted in a decline in our organic growth in this quarter. The earnings were fairly in line with last year despite the headwinds from raw material trade tariffs, currency as well as the decline in volumes, a strong price momentum offset these headwinds. In the quarter, we increased investments in marketing for new product launches and innovation focused boost our earnings to improve mix. We've started to incur some costs for the preparation of the Professional spin off, But overall, I'm quite pleased with the quarter and particularly the price mix execution.
Turning to the next page, as I mentioned, our innovations are really, helping our earnings performance and driving positive mix. And we choose to highlight two examples here And really what it is about is the power of consumer experience innovation to drive sales of our more premium and more highly featured products. We focused on taste, care and well-being innovation for the last several years and are now starting to see very tangible results in terms of mix contribution. So here, we're highlighting 2 examples. The most recent is the most recent example of this is a new product that we're launching in North America, which is a front control freestanding range with air fry technology integrated.
So air fry is a more healthy way to fry French fries or chicken wings with less oil. So a significant taste benefit with, with health benefits that's something that consumers really, look for. And we are the first on the market to integrate this in a affordable product. So that's just an example of how we look at Taste Experience as an innovation driver to provide attractive products. An example that's been around a little bit longer is our care innovation in Europe under the AEG brand where the strong consumer insight that we have is that consumers are really concerned about how washing machines and tumble drivers, tumble dryers might impact the the how their clothes look and how long they last.
And our innovations in terms of care really help consumers get more confidence in what products they were close day wash and dry. And this has resulted in an over 30% EBIT improvement of our AG premium laundry product. Really tangible results from deep consumer insights and solving real problems for consumers. And this, I think, is very relevant as we're now doing a similar launch in Europe under the Electrolux brand, we started with the laundry products last year and are now coming with a full range of built in kitchen products driven by taste innovation. So strong earnings impact from consumer insight driven innovation.
Turning to Europe. We had solid performance with a positive organic growth, albeit at a slower pace than in the first quarter, where we had some pre buys in the UK as well as the Easter effect on a year over year basis, shifting volumes a little bit between the first and second quarter. We had positive price and continued strong product and brand mix development. Earnings were solid and we saw strong performance in our focus areas of built in kitchen and laundry, as I just described. We continue to invest in marketing, mainly for our large built in Kitchen range launch under the Electrolux brand, which is currently reaching the market and wrapping up in the 3rd quarter this new range has been very well received by retailers and we have high hopes, for the Electrolux brand in Europe.
Overall, I'm very happy with the performance in our European business. Turning to the market. The overall market remains supportive. With a 1% year over year growth. This is entirely driven by Eastern Europe, growing 4% while Western Europe was relatively flat in the quarter.
Turning to our North American business, we saw continued good price momentum and improved mix. The mix was partly driven by our new global multidoor refrigeration range as well as the front control freestanding cookers that I highlighted earlier, they're getting top consumer reviews. This partly offset the volume decline that we saw on an overall declining market where core appliances the core appliance market was stable, while air conditioners and microwaves declined substantially in the market. The negative volumes in the quarter were mainly caused by lower private label sales, but also on ERP system go live impacted volumes negatively. EBIT was fairly in line with the second quarter 2018, excluding the positive earnout release that we had last year of about SEK 100,000,000.
The higher prices and mix improvements offset the higher costs from raw materials and trade tariffs, but not fully than the decline in volumes. Looking at the appliance market, industry shipments for core appliances in the U. S. Was stable in the quarter compared to a very weak quarter last year. However, demand for microwave ovens and air conditioners was down 20% and hence the total major appliance market was down by 8% in the quarter.
We estimate sell out to consumers to be in fairly in line with the sell in of core appliances in particular. Turning to Latin America. We saw good execution in a continued volatile environment. Our largest market in Brazil continued to show solid recovery and demand is estimated to be quite strong in the quarter. The Argentinian market, however, continued to decline significantly while Chile was only slightly down.
We saw strong organic growth and margin increase, driven by continued positive prices and mix improvement and also on a year over year basis, driven by last year's truck driver strike that impacted results last year. Mix was primarily driven by Brazil, where, for example, sales of high capacity washers and multi door refrigerators contributed positively. And the cost base price increases that we previously implemented fully offset currency and raw material headwinds. Turning to Asia Pacific, Middle East and Africa. We saw, demand growth continue in Southeast Asia And Middle East, even though the Southeast Asian region was somewhat softer than previously.
Demand in Australia remained weak due to the slower Australian market and the price increases we implemented to mitigate increased costs related to the currency headwinds. However, we did see positive mix here, particularly the multi door refrigeration platform that I mentioned previously, as well as the launch of the, what we call the E-one hundred built in range under the Electrolux brand, particularly in Australia but throughout Asia. And also, we saw positive mix from our newly launched cordless vacuum cleaners, particularly the pure F9. Earnings decline, however, versus last year, mainly due to the continued impact from strong currency headwinds but also lower volumes in Australia had a negative impact. And we continue to invest at elevated levels in marketing the major product launches such as the new kit, built in kitchen range in Australia, which of course impacted our cost structure negatively.
Turning to Professional. We had solid performance with good organic growth, on a slightly softer overall market. We saw strong growth in the beverage area, supported by a rollout for a chain customer in North America that we finalized in the second quarter. And we continue to see slightly positive price realization, leading to a very strong margin at 16%. This margin was heavily supported by the good contribution from the beverage rollout that finalized in the quarter, and we also had a positive earnings contribution from a pension plan settlement in Sweden related to the preparation for the professional spin off.
We had higher investment in marketing and innovation, as well as product ramp up costs, production ramp up costs, especially for the new skyline cooking products and the new line 6000 laundry products. These investments will continue during the remainder of the year to support these global launches. On a separate note, the board reconfirmed our plans to proposed to spin off of professional products, and we currently aim for a listing in the first quarter of 2020 or at the latest in the second quarter. Turning to the financial overview, Andreas.
Thank you, Jonas. In the quarter, we saw an organic decline of 2.6%. This was a result of higher prices combined with mix improvements across the business areas, but this was not able to offset the volume decline was primarily driven by lower private label sales positive translation currency impact of 3.8 percent. Gross profit improved on the basis of good contribution from price and mix. And operating income was fairly in line with last year where the comparison period included a nonrecurring item of SEK 818,000,000.
Price increases was fully offsetting headwinds from higher raw materials, tariffs and currency as well as the lower volumes in the quarter. Mix contributed positively, while higher marketing and R And D investments and costs related to the planned separation of professional impacted earnings negatively. And all in all, operating margin was 5.1% compared to 5.2% last year. Earnings per share was SEK3.94 in the quarter. If we then take a look at the EBIT bridge We saw continued positive organic contribution, which was primarily driven by higher prices that was especially good in North And Latin America.
But also in Europe. We also see increased earnings through improved mix by selling more high margin products. And this was from an EBIT perspective more than offsetting the shortfall in the sales volumes, primarily relating to the decline in North America. We continue to have high headwinds from raw materials and tariffs, although on a lower level than what we saw in the first quarter. Currency had a slight negative impact on EBIT despite a positive effect from translation efficiency, as earlier indicated, was negative in the quarter.
We have continued good traction from our underlying cost efficiencies but this was offset by increased investments in Innovation And Marketing. And in this quarter, we also started to incur costs in preparation of the professional spin off. And we also, the release of the acquisition earnout that we had last year was impacting the net cost efficiency negatively year over year. Then let's take a deeper look into the organic contribution. EBIT margin accretion for the group from pricemix very strong at 3 point strong performance in our focus areas as built in kitchen and premium laundry.
And prices also improved versus last year. In North America, we have good price traction with prices sequentially improving. This was a carryover effect from last year's price increases that are carried out through this year, but it's also partly related to lower promotional spend as last year's 100 year celebration campaign of the Frigidaire was not repeated this year. In Latin America, we had good EBIT contribution from previously implemented price increases, and this was coupled with mix improvements. In APAC and EMEA, we had a positive effect from price actions previously taken in Australia, while price for the total business area was flat.
Mix remained positive, driven by growth in refrigeration and kitchen products as well as in cordless vacuum cleaners. And for professional products, we continue to benefit from the positive price in the quarter. If we look at our cash 4,000,000 in the quarter, which was below the level of last year. This was mainly due to negative contribution from working capital due to timing effects. Which was predominantly related to an ERP system go live in North America, which impacted by approximately SEK1 billion.
And this effect is temporary, and we expect it to be recovered in the third quarter. As we have announced, we also have a higher working higher capital expenditure level due to the ongoing investment projects in reengineering. And this we also saw continuing in the second quarter. The average operating working capital in relation to rolling 12 month sales showed an increase to 4.6% versus last year's 4.0. And as highlighted, the working capital efficiency we have achieved over the last 10 years are expected to flatten out and remain at this healthy level.
First, of 2 installments for 2018 dividend payment of SEK8.5 per share was distributed to shareholders and the cash flow was impacted by SEK 1,200,000,000 in the quarter. And with that, I want to hand back to Jonas for the outlook and summary.
Turning to the market outlook, we reconfirm our market view for the full year 2019 with the exception of Southeast Asia. And current industry trend indicated somewhat softer market demand for Southeast Asia, and hence, we expect the region to be slightly positive compared to our previous positive outlook. We continue to expect market demand for appliances in Europe to be slightly positive in 2019, driven by Eastern Europe. In North America, trade tariffs have triggered price increases resulting in uncertainty and somewhat weaker demand. We've also seen consumer sentiment moderate overall a fundamentally solid demand environment.
As a result, we continue to expect industry volumes to be slightly negative. In Australia, a slower property market and a weaker currency are impacting demand, and we continue to expect market volumes to be slightly negative. In the LatAm market, the recovery in Brazil continues and the region as a whole is expected to be slightly positive. Turning to the business outlook. We expect a favorable organic contribution for both the full year 2019 and Q3, driven mainly by the higher prices, especially in North America and in Latin America, mix has contributed positively in the first half of the year, and we expect this to continue for the remainder of the year.
In terms of volume, we expect price label sales in North America to continue to decline, as was the case in the first half of the year, while the impact from the ERP system go live that we had in Q2 should not impact volumes materially going forward. We estimate the negative year over year impact from raw materials and trade tariffs to be approximately DKK 1,200,000,000 to DKK 1,400,000,000 in the full year compared to the previous estimate of approximately DKK 1,400,000,000 to DKK 1,600,000,000 The improvement is related to that we have locked in more steel and chemical volumes at favorable rates and now have improved visibility for the year. The outlook is based on the current tariff levels. So that means that Section 3, Section 301 List 3 is included at the current 25% rate. However, for clarity, these higher 25 percent tariffs on this 3 did not have a significant impact on the 2019 outlook.
Since most of the seasonal purchases of air conditioner products took place before the tariff rate hike. In the first half of twenty nineteen, price has fully offset this headwind, and we expect that to be the case also for the third quarter 2019 as a whole. In terms of net cost efficiency, we keep our view that the full year net cost efficiency will be negative. If we zoom into Q3, we also expect net cost efficiency to be negative in the quarter and step up compared to the second quarter. This is due to three areas that we've communicated earlier about and that should be well known.
First, last year, we had positive one offs in the third quarter of roughly SEK 250,000,000 relating to a provision release in Latin America and a capital gain from a divestment in North America. Secondly, the manufacturing transition costs in North America that we've talked about before will start to kick in. As we have said, we will start production in our new Anderson facility during the third quarter. Meaning that we will have extra costs in terms of higher inventory and running these facilities in parallel. To ensure a smooth transition, which means that we will run 3 facilities for a period of time before going down to 1 towards the end of the year.
The third quarter is an important quarter for us in North America in terms of this manufacturing production ramp up. The new Anderson facility will result in significant cost efficiencies And we expect to start to see this from 2020 when we go from these now 3 facilities down to one at the end of this year. The final and third area is higher marketing spend, as I mentioned before, to support the major product launches that we have in the second half of the year. Innovation is for me the key driver to improve margins in the long term. In the last quarter, we've proven that we are well capable of executing on innovative products and driving positive margin, and we'll continue to do that.
In addition to these three areas, as indicated, given the board's confirmation on the intended professional spin off. This will result in cost of roughly SEK 100,000,000 relating to preparation work during the second half of the year. Turning to currency. Our indicated headwinds of SEK 200,000,000 for 2019 has been positively impacted by favorable translation effect and is based on currency rates as per 11th July. Continue to execute on our reengineering program.
And as I mentioned, we are about to start production in the new Anderson facility in the U. S. And hence, we keep our full year capital expenditure outlook of SEK 7,000,000,000. So our path to profitable growth is continuing. We're continuing to be strongly focused on executing in our strategy, and I'm really pleased that our price execution is sticking, and we're continuing to fully off at the headwinds.
Most of the business areas showed continued improved both price and mix, which I think is a significant contributor going forward. We're continuing to invest in innovation and marketing to support the new product launches and cater for further growth in the future. We're enabling this to a continued strong focus on our balance sheet and with a healthy overall balance sheet situation. So with that, I'd like to turn over to Q and
questions, moderator.
And we have a question from the line of Johan Eliason of Kepler Cheuvreux. Please go ahead. Your line is now open.
I was wondering about this networking capital impact on the cash flow in the quarter, you mentioned this ERP system change But then you also said that, okay, so the new plant in U. S. Will start ramping in Q3. So there will be some inventory buildup also from that one. Does that imply that we shouldn't expect any release from this active inventory build from the ERP and then the Anderson plant until maybe Q4 this year or how do you see that?
And then also on this ERP, is it part of this new plant development in the U. S? Did it have any costs associated impacting the EBIT in North America in the quarter?
Yes, it is 2 slightly different questions. The ERP system is not related to the manufacturing go live, but is related to our finance processes. So from a cash flow perspective, you can this was related to lower collection of receivables. The cash flow impact. And this was a temporary thing where some of the collection fell over into July instead of June.
So this will come back in the third quarter. And when it comes to the inventory buildup for the plant, that has been going on for a little while. And as we say, we will have 2 different factories. We don't see this as a major impact on our cash flow going forward. So essentially, you should see all the drop that we saw in the cash flow in the second quarter coming back in the third quarter already.
And it didn't have any impact on the EBIT in the quarter?
No, as we, as we have said, it didn't really have an impact on the group level at all. We saw a slightly lower net sales in North America, but it didn't really have an impact on EBIT neither for North America in the quarter or for the group.
Okay. And then just on the raw material headwind guidance, obviously very positive that you reduce it despite having the tariffs, but which we got explained by the tariffs obviously hitting the air cons, mainly. Now does this imply that you have will have a more significant headwind next year on the back of this 25 percent tariffs on the Aircon?
Yes. So assuming that they stay in place, assuming that they stay in place, yes, absolutely.
Our next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead. Your line is now open.
Good morning. Thanks so much for taking my questions. Can we talk about pricing first? You talked about pricing impacts coming from already implemented price increases. I thought there was a dynamic there where you raised or announced price increases at the beginning of the year.
Then we're discounting against them as the tariffs were delayed and then those discounts should have been eliminated as the tariffs in the end were put on. So how should we think about the pricing impact on the bridge or on P and L for you for the second half? Does that run rate of what I think is about 2.5 points in H1. Does that tick up, and also taking account of start comping the last year price increases. So I just wonder if you could help us with where the pricing level is sequentially and then year on year for second half?
Yes. So your description is correct, of the impact on sort of the tariff hikes and so on. But then, of course, because most of the air conditioners in the market, not just for us, but overall in the market were purchased before the 25% rate. Most of the volume sold this year will be at that lower. Also, you know, going forward here, will be sold at that lower price most likely.
When it comes to the continued year over year, I think there's another sort of year over year impact that we have to keep in mind. And that is that we had the significant promotional event in the second quarter last year related to the Fridaire 100 year celebration that we didn't have this year And so that year over year impact will not be there for the rest of the year because we didn't have a corresponding sort of promotional event last year in the second half. And then, of course, we started to raise prices both in North America and in Latin America in the second half of the year. So when you kind of net all of that out, we will see less headwind sequentially from raw material and currencies and so on, but also less year over year pure price realization on a year over year comparison basis.
Got it. Thank you. That's very helpful. And just on the net cost efficiencies, so if we look at the 265 in Q2 and take out the 100 for reversal. So building that from 165 underlying, so we think about 100,000,000 for professionals spread across the 2, and then the higher Anderson costs and the marketing spend, which I guess is also actually comping comparably year on year because you were spending, last year.
I mean, I kind of see it, stepping up, but not like not another SEK 100,000,000 from the from the Q2 run rate. And the second half, I can't see sort of expanding more than SEK 500,000,000 Is that sort of in the right ballpark or some of these items we're missing?
Yeah, you're missing a few things. So first of all, we're not going to give you an exact number, of course. But yes, you started out with 2 relevant points, but then Then of course, as I mentioned last year, in Q3, we had this approximately $250,000,000 positive one offs that will reverse out in the 3rd quarter. And then we are stepping up the investments in marketing and launch spend, everywhere in the third We have big launches in Europe, big launches in Professional, big launches in North America, as indicated, and that will result in fairly significant step up in spend going into the 3rd quarter. So yes, I think we are definitely seeing more, more headwinds than, than I think you are looking at there.
Got it, got it. Thank you very much.
Particularly in the third quarter. So for the full year, it's not a major, let's say, run rate increase for the for, you know, also the fourth quarter because we will see less of these sort of one off year over year comparisons and so on, but the third quarter will be a spike.
Right. And then it would come off in Q4. Got it. Thank you.
Thank you. Our next question comes from the line of David MacGregor of Longbow Research.
Yes, good morning, everyone. Just a question, I guess, very strong price mix performance across the model in the quarter. But I'm watching kind of lower metals prices starting to work your way into the marketplace. And I'm just wondering how confident you are in your ability to continue to hold pricing in the face of lower metals prices in the second half?
Yes. No, I think this is the same answer that I always have on those types of questions. That is that these the market prices of input materials tend to translate into market prices for appliances over time. Going up or going down, So there's always a little bit of lag, but it's a competitive market and the input costs tend to get translated into product costs over time.
Do you feel like you've got a stronger price mix position in one region or another? It seemed like you were talking about strength across the entire global model and pricemix. I'm just wondering how maybe North America versus Europe?
Yeah. I think we have. We do see strength in across the board. And I think in particular, what I'm, again, I highlighted that in Q1 and I want to do the same here in Q2 that we saw both cross positive pure price and positive mix, meaning that despite the price increases, meaning that a product has a higher price than a year ago, we're still selling more of our more highly featured, highly priced products. And that, to me, is a real sign of strength.
It means that the innovations that we're bringing to market and the brands, that we're carrying have strengthened in the market. And I think that's a fairly sort of consistent picture across the globe with exceptions in places like Argentina and so on where the inflationary pressures are very, very high. So to me, it's a really a strong validation of our strategy. Then then to your point, and what I, as I said the input costs that impact the industry sort of equally do trans tend to trans get translated into market pricing?
Just a follow-up question on the relating to your observation on mix, you talked about the strength in built in in Europe. Do you feel like maybe that is a function of having gained share in built in in Europe or do you feel like the built in category in general has just been growing very strongly.
Yes. No, we're gaining share in built in and particularly under our premium brands. So the focus for us and you know that we've been focusing for the last 6, 7 years or so really on our built in kitchen offering under Electrolux and AG as well as our premium laundry, offering under, under Electrolux and AG. And And that very, very strong single-minded focus is really working. And we're gaining we've gained share consistently for several years in a row and are continuing on path.
And now we're launching, as I mentioned, a complete new Electrolux branded premium range in building kitchen that we have, very high hopes for.
Our next question comes from the line of James Moore of Redburn Partners.
If I can. The first one is on the professional division. Could you help us size the professional, sorry, the pension settlement gain in the division?
Yes. I mean, it's big enough to be noticeable in the EBIT, but not big enough to be called out as a specific number. And And basically, that's kind of how we we can't quantify all these sort of minor items because then there will be a very long list of little things hitting up and down. So we don't do that, but we call it out because it's noticeable in the professional specifically the professional results.
Fair enough. Thank you. And on the U. S. Reengineering costs, kicking in in the third quarter.
I'm wondering if you can help us with whether your the impact that you see coming from that is broadly in line with the plan or whether you see it pulling forward more into the third quarter than the 4th.
Yes, it's broadly in line. I think the the and there will be costs in both Q3 and Q4, but the Q3 aspect is, of course, as I kind of indicated that we will in fact, we'll have 3 factories running, right? So the old the same cloud factory, which we're closing towards the end of the year, and then sort of the old Anderson facility and ramping up the new one. So we will have, you know, 3 factories going to 1, ultimately. And And of course, that, that results in cost.
There's no way around that. The end result will be dramatically more efficient, and with massively better products, I think, very important to say. But there are some, yeah, fairly noticeable duplication costs and ramp up costs associated with that.
And on the marketing and launch costs in the third quarter, you mentioned that ramping up and stepping up. I think in the first quarter, you mentioned they will be stepping up in the second quarter. And what I'm trying to understand is the cadence of the marketing spend, if you like, as a proportion of revenue in the US or around the world. But broadly, if you look at an annual number, what is the marketing spend And how has that changed in the last few years? And are you seeing a particular spike against those normal running rates in the third quarter just because it's often mentioned that we have launches and there's marketing costs.
That's just quite difficult to understand the impact.
No, the reality is that we are I mean, obviously, the big investments that we're making in new product, when we put the bring those markets the products to market, then we will spend the commensurate money to launch them. And that is a sort of an increasing trend, I would say, structurally over time. Our overall marketing spend is a little bit below 4% of net sales. That has been increasing in, in recent years. And we expect we hope, honestly, to be able to increase that further as we go forward because that, to me, indicates that we're successful in driving, favorable mix and overall higher profitability.
So for me, this is the good, this is good money We're putting it in the same bucket as all the other efficiency work because we'll, of course, we need to, you know, we have the bridge to, to tie, but this is money that I want to stand.
And lastly, just to clarify on Andre's question earlier on net cost efficiency, against the million you talked about the increase in the 3rd quarter. But if we stripped away the million gain reversal and the million gain to get back to sort of an underlying, are you saying that it spikes up in the third quarter quite meaningfully against that 165 or is it just a function of the reversal of the 1,000,000?
No, it's both, it's a combination of the 2.
Our next question comes from the line of Martin Wilkie of Citi.
It's Martin at Citi. Just a question on the raw material headwinds. You mentioned that you'd locked in some favorable rates on raw materials. And obviously, we have seen steel pricing coming lower over the past few months. If you could just give us some sort of sense as to how much of that lower impact is locked in impact in 2019?
Because you obviously said that the headwind is slightly less than it was beforehand, but presumably some of that sort of falls over into 2020 as well because of hedging and forward purchasing and so forth. So just to give some sort of sense as to how much of that locking in favorable rates is reflected in your 'nineteen guidance and how much of it is still to come in 2020, even just sort of directionally? And the second question was just on the ERP. So you mentioned that the working capital effect reverses as you sort of get those payments in July, but you also mentioned that the ERP hit volumes in the U. S.
And if you could just clarify sort of why that happened? And is that effectively market share lost or do we spectre, reversal, if you like, of that volume impact from the ERP in Q3 as well? Thank you.
Sure. So starting with the steel, yes, We have seen, as I think is visible to everybody, a quite substantial drop in the market prices for, for, cold rolled steel. And and we have been able to secure, you know, good, good contracts as a result of that for the rest of the year. But, but of course, the first half of the year was mainly based on the prevailing market conditions late in late last year when we when we, sign those contracts. So while while our actual pricing doesn't correspond perfectly with market prices because there are lots of other other factors impacting that more locally and the variance and and all those things.
There's lots of factors here. For sure, we have seen a better pricing environment. What's going to happen going forward into 2020, I honestly don't know because and and we haven't started those, negotiations with our suppliers So I'm going to have to defer on that question. When it comes to ERP, it's a basic walk we did we went live with our sort of finance and commercial ERP system that we've been rolling out globally over the last several years. In the quarter in North America.
And of course, this is a very, very big market. And inevitably, there are some some sort of slowdown in the go live phase, that means that given that we have a very short order books, some orders were lost during that period. That's known and expected. That's a temporary effect, but we don't necessarily expect to get back those volumes but that's a, yeah, that's a very manageable and minor effect. And then, of course, there's the effect of as you ramp up the new system, you have to match credit notes to invoices and things like that.
And that is, takes a little while to get that all sorted out. And hence some payments to us, some collection got pushed over the quarter end. Again, these are all things that typically happen when you have an ERP goal are, the only difference is that now we did it in basically in markets reflecting a third of our revenue. So that, that of course, the working capital impact suddenly becomes quite measurable.
Thank
And our next question comes from the line of Annabel Asquith of Morgan Stanley. Please go ahead. Your line is open.
Hi, good morning. This is actually Lizzy. I had actually two questions The first one was on the European market. I mean, the sequential deterioration or deceleration, I would say it's quite steep. Versus what we've seen in the first quarter.
I appreciate the pre buy effect from the UK, but I was wondering if you comment maybe a little bit on the Scandinavian market specifically as one of your favorite Swedish company yesterday was mentioning some slowdown on the residential side? And if there is anything specific on any other European country that is maybe notable to kind of explain the drop? And then secondly, and apologies if you already mentioned that, but I had some issues with the line. But can you quantify maybe the impact of the decline in private labels in the US and whether this is accelerating because the comp seems to have been really easy in the second quarter of the year. I mean, AAM is flat.
AAM6 is flat in the second quarter. And your organic decline seemed quite more pronounced than what we've seen in previous quarters.
So yeah, if we start with Europe, I would say that the underlying trend is relatively flat, stable and flat in Europe. And I think that was honestly the underlying trend also in Q1. And if you look at last year, it was basically flat in Western Europe as well. And And there are minor minor ups and downs, market by market, but the trend is very much flat. In Western Europe.
In Q1, Q1 versus Q2, we had the pre buy in the UK where people were stocking up an eventual hard Brexit on March 27th. That didn't happen, so that reversed out in Q2. And then of course, we had the Easter effect were Easter this year occurred in April and last year occurred in March. And that has a kind of a swing effect between the quarters that if you sort of neutralize those effects, you basically see a flat quarter on in West On Scandinavia, I honestly don't have anything significant to report. It's, it's, chugging along, I would say, not exciting, but not terrifying either.
And switching them to North America, we had, of course, Q2 last year, we were, I mean, you'll recall, and it's well known that our private label business is mainly Sears. And in the second quarter of last year, and also the 3rd, we were selling at sort of full speed to Sears. And then they declared their chapter 11 in the fourth quarter. There was real organization in the beginning of this year, but the our sales volume in private labels and mainly Sears are much, much lower now than they were in the prior year period. That's just a, that's just an unfortunate reality.
And then on the branded side, last year, we had these big 100 year celebrations that pushed volume, but at low margins, and this year, we were more, watching the margins and saw some slightly lower volumes. I would say that's not that's not a trend effect. That's just a year over year promo versus no promo. And then importantly, and I did mention that the core appliances were flat. But if you dig into it, you see actually that kitchen appliances were negative by something like close to 4% and we're mainly a kitchen appliance.
Company in terms of core appliances in North America. And then air care and microwaves were down 20% in the quarter, and that's a relatively sizable business for us. So when you look at all those factors, I would say it's not, it's not, let's say, unexpected volume development overall for us in the quarter. And we're quite pleased again, as I mentioned, with both the price and the mix realization that we had. So we were able to really defend our Defender bottom line, almost completely on an underlying basis, driven by that.
Our next question comes from the line of James Moore of Redburn Partners. Please go ahead. Your line is open.
I wanted to ask on the Latin American margin, which did pretty well. You mentioned the trucker strike impact dropping out. I was wondering sort of proportionally how much of the increase year on year was trucker strike and how much can we effectively carry over into the second half. And I wonder if you could peel the onion a little bit of Latin American profitability whether it's all Brazil and the other two countries are going the other way or what?
Yeah, I mean, in this sort of May, June timeframe last year, we the market stood still for a while. So So the year over year effect, I mean, that impacted last year heavily, right? We lost money in the second quarter last year. And of course, the fact that we didn't have that and in fact, the market is in Brazil is quite buoyant. If you look at the overall run rate that might assessment is that it's in the sort of high single digit overall growth rate on a run rate basis in the first half.
So that's of course quite, quite positive for us, but, you know, the very weak result last year was technologies and explained by the trucker strike. Then typically, if you look at the pattern in Latin America, then Q3 is relatively soft quarter and then we have a strong 4th quarter. That's typically what the pattern is. Then going outside of Brazil, Argentina is very soft, still, and And I think the year over year effect is starting to be less negative, but it's not because the market is returning. It's still, it's still quite soft.
And we expect that to continue through the presidential elections that are upcoming this fall. But we are able to offset or compensate for the inflationary pressure through price, which is very good. So we're profitable, but low volume. So I think those are the headlines for, for Latin America.
Thank
you. Our next question comes from the line of Andre Kukhnin of Credit Suisse. Please go ahead. Your line is now
Yes, hello again. Thanks very much for taking the follow ups. One I wanted to double check on was the tariffs versus pricing for 2020 implications. I've understand that, this due to seasonality kind of managed to blow over for 2019. Could you help us quantifying the kind of the full year impact from tariffs with, Section 301 List 3 at 25%.
Just thinking about next year and also Can you confirm that if pricing stays, as it is, so hence, with discounts removed, that covers that headwind?
Yeah. I mean, on your second question, I I yeah. Yes. So so we actually already have, you know, are now removing those, those discounts, to reflect the new tariff levels going forward. However, again, the volumes from now on are very low for the rest of the year, most usually.
So that will have a very marginal impact for this year, but next year, yes, we will see the headwinds from from the list 3 if it stays in place, but, but the pricing is now, yeah, from now on, already in place to cover we don't need to take any further action. But I'm not going to go in and quantify the individual list effects. It just gets too messy to track So it's covered in the overall guidance, yeah.
Right. And if we use that reference in Q2, sorry, in Q1 when you changed your guidance for raw materials and tariffs, by, I think, from memory 1000000 to 1000000 and part of that was List 3 coming out of guidance, especially at the bottom end. Is that sort of still a useful reference point for that?
It was a noticeable significant part of that, but I'm not going to say exactly which is which, honestly.
Got it. And also, I just wanted to check on Electrolux brand revamp in Europe. If there are any early indications on how that is going and gearing up. And also, well, maybe let's just start with that. I've got a little follow-up
Right. So we're really doing that. In terms of the market communication, it's really going to hit the market mainly with a new launch of of the built in range that we're now starting to ramp up heavily in the third quarter. We're extremely excited about it. To basically present the Electrolux brand as a Swedish brand with leadership and sustainability progressive, modern, and inclusive, we think that's a brand that is extremely well attuned to, to the trends.
In the market and what consumers are looking for. So we're really excited about this revamp. And again, as I as we've indicated several times, we did the same thing for the AG brand with a very different platform. And when you do it, a new brand platform in combination with new well design and very innovative products, you get sort of a cumulative effect that's quite significant. If you'd only do one of those three things, it's, it's, it's less significant, but when you can have an attractive brand, beautiful products with fantastic consumer experience driven innovation, that's when you can get a real pop.
So we're excited about it.
Great. And that reference to AEG, I just wanted to follow-up on that because I remember from end of 2017, we you presented a slide saying that the revamp of AEG resulted in, I think, about 7% ASP increase for the brand overall and you relaunched the whole brand over 3 years. Would you still maintain that the Electrolux revamp can have a sort of similar order of magnitude effect?
I would say so. Yeah. Yeah.
And it's about two times the size of AG?
No. No. It's actually, no. It's actually, Electrolux is only marginally bigger than 80. It's a relatively similar size.
Do we have a final question?
Final question from the line of Krista Magnaigold of DNB Markets. Please go ahead. Your line is now open. Good morning.
Well, I can start with just a follow-up question on the net cost efficiency we had said that you had a SEK 250,000,000 1 off in Q3 last year. If I recall it, I had SEK 170,000,000 in my model. Won't double check that number.
This one was the release we had in in Latin America. And then the second one was the gain from the sale of our commercial vacuum cleaner business in North America.
And then secondly, when it comes to the production changes you're planning for next year, will they be as significant as you do here in Q3, and so on or will there be a smaller exercise?
That will be a smaller well, the manufacturing investment per se is equally big, but the product move is much smaller because we have a Yeah, the Memphis consolidation into Springfield is, much, much lower volumes that we're moving. So So the extra cost will, at least the way I see it right now will be lower.
Frigida Delo, 100 year celebration last year in Q2. What kind of year over year impact did it have on pricing in Q2?
Yes. I mean, we don't break it out in that level of detail, but of course, we did have a solid, really solid contribution from pricing year over year in North America in the quarter. And of course, you know, the volume and the pricing to some extent, if you take the private label aside, which is not driven by pricing, then of course, the recent impact from the fact that we had kind of a really a one off event last year, you know, driven by the 100 year celebration. So So if you then compare that year over year, that's a fairly significant pricing boost from that.
Did you also have a step up in marketing last year related to that? Or was it only on the pricing from us?
It was mainly, there was some marketing, but it was mainly, yeah, sort of 100 year anniversary discounts, let's say. And but, of course, supported by marketing.
Great. Well, thank you very much.
Thank you. I'll now hand over to Johan for closing comments.
As I mentioned in our presentation, we're really on our path to profitable growth and we're continuing to focus on on executing, exciting new product launches, manufacturing, revamp automation, digitalization, leading the way in terms of driving profitable growth going forward. And I'm really excited about the fact that we're already now able to show the benefits of that, significantly improved mix and price in the quarter showing that we're able to execute that. And we're really excited about what's coming in the second half of the year and into next year. And of course, supporting that with a strong balance sheet and continued strong cash generation. And with that, I wish you all a great summer and look forward to seeing you all soon.
Thank you.