Good morning. A warm welcome to the first quarter of 2019 result presentation. With me today, I have our CFO, Therese Friberg, and our Head of Investor Relations, Sophie Arnius. Before starting, I'd like to mention that this session is recorded and will be available on our website as an on-demand version. Turning to our business overview and starting with the first quarter highlights. We had positive growth in most of our business areas in the first quarter. We're starting the year with strong price execution, with new price increases at the beginning of the year, as well as carryover from previous year price increases. We continued our positive mix development, thanks to our innovative products. Volumes declined, mostly due to our private label business in North America continuing its negative trend.
The earnings were fairly in line with last year, despite significant cost headwinds from raw materials, tariffs, and currency. Our strong price realization is now fully offsetting these headwinds. We took a restructuring charge of SEK 1,054,000,000 relating to the consolidation of manufacturing in North America and Latin America that we have previously announced. All in all, the first quarter was a solid quarter with strong price execution and supported by mix improvement across all of our business areas. Turning to our innovation, we have two important highlights from our market activities. We're strengthening our global offering of refrigeration in the attractive and fast-growing multi-door category. We're leveraging on a global architecture tailored to local customer preferences with manufacturing in Thailand. The product offers connectivity and a fully flexible drawer, which can be used as a fridge, chiller, or freezer.
This multi-door refrigerator was launched in Australia and New Zealand late 2018. Now in the first quarter of 2019 in North America and in Latin America. Secondly, I'd like to highlight our new innovative premium kitchen range under the Electrolux brand, which will be a competitive offering with groundbreaking assisted cooking and connectivity features. The range was presented in the first quarter and will be rolled out in Europe during 2019, with a focus on growing our profitability further in the premium segments under a sharper and more focused Electrolux brand. Before moving to the business area reviews, I'd like to remind everybody that we have a new business area structure as of the 1st of January 2019, integrating home care and SDA in the regional business areas. Starting with Europe.
We had strong performance in the quarter with an organic growth of 4.4%. The sales growth was mainly driven by higher volumes and product mix, but also some positive price achievement. We saw continued strong performance in built-in kitchen products. We also had market share gains with the Electrolux brand, which provides a good base for our new product launches. Earnings and margins improved with good organic contribution compensating for raw materials and currency headwinds. EBIT grew by 12% versus last year and margin increased to 6.5%. Overall, I'm very pleased with our performance in Europe. Turning to the demand situation. Overall market demand in Europe increased by 2.5% year-over-year. We saw continued strong growth in Eastern Europe of 5% with 2% growth in Western Europe. The European market remains supportive. We've seen demand increase across most European markets in the quarter.
We believe there were some pre-buying activity in the U.K. in advance of a possible hard Brexit at the end of March. Turning to North America. We continued to improve our price. Also, mix improved significantly in the first quarter. We gained share in our core branded products despite the market weakness, volumes continue to decline mainly in private labels. The price increases more than offset raw materials and tariff headwinds in the first quarter, earnings came in lower versus last year because of the lower volumes. As communicated, we have taken measures to strengthen our competitiveness by consolidating our cooking manufacturing. We took a restructuring cost for the Memphis consolidation in the quarter of SEK 829 million. The re-engineering programs are progressing very much according to plan. Turning to the U.S. core appliance market.
We saw industry shipments for core appliances in the U.S. decline by 7%. This was compared to a strong quarter last year, which was driven by good consumer demand and also by pre-buys ahead of tariff implementations. Demand for microwave ovens and air conditioning products was up 1%, resulting in total major appliances down by 4%. The weak industry shipments overall is partly explained by the higher prices in the industry, as well as uncertainties around the future of the trade tariffs. We estimate the sell-out to consumers to have been less severe than sell-in, as Q1 last year was boosted by the high shipments related to timing of tariff implementations. Turning to Latin America. The Brazilian market showed recovery in the quarter, while Argentina continued to be weak and Chile was fairly stable in the quarter.
We saw strong positive impact from higher prices, mainly from carryover from 2018, also because of lower promotions and discounts in Brazil in the quarter. Mix was positive, volumes declined due to higher prices, some shipment timing issues, and the weakness in Argentina. Underlying earnings, excluding non-recurring items, were fairly in line with last year. We're pleased that the cost-based price increases now fully offset the negative effects from currency and raw materials in the region. Finally, in the first quarter, we took a restructuring charge of SEK 225 million for the consolidation of refrigeration manufacturing in Chile. Also in Latin America, our re-engineering programs are continuing with good pace. Turning to Asia-Pacific, Middle East, and Africa, we saw good growth in Southeast Asia and Middle East region, while demand in Australia remained soft due to the slower housing market.
Growth for our operations was driven primarily by higher volumes in Southeast Asia and MEA, combined with improved mix, while volumes in Australia declined, impacted by the higher prices. Price and mix both contributed to the higher sales, with good growth across several key categories, such as the multi-door refrigerators I presented earlier, laundry, and air conditioners, in particular in Middle East, Africa. Earnings declined versus last year, mainly due to the continued impact from strong currency headwinds and from the lower volumes we faced in Australia. Ongoing investments in major product launches also impacted the EBIT. Turning to professional products, we had a very solid quarter with strong organic growth of 12%. Sales increased in all our three areas, particularly with strong growth in beverage. Growth was also further supported by increased aftermarket sales. Earnings improved by 27% and margins increased to 13.1%.
We continue to invest in R&D and marketing for further new launches. We completed our professional beverage offering in the quarter by the acquisition of the French professional espresso machines manufacturer UNIC. The preparation for the intended separation of professional is proceeding. As mentioned before, the ambition is to list the company in the first half of 2020. With that, I would like to leave the word to Therese Friberg for the financial overview.
Thank you. In the quarter, higher prices combined with mix improvements across all business areas resulted in our organic sales growth of 1.9%. Acquisitions and divestments had a slight negative impact of 0.3%, while translation currency impact was positive of 4.8%. In total, sales was up 6.4%. Operating income, excluding non-recurring items, was fairly in line with last year. We managed to fully offset the increased cost for raw materials, trade tariffs, and currency with price increases. All in all, our operating margin, excluding non-recurring item, came in at 4.4%. Earnings per share, excluding non-recurring items, was SEK 3.25 compared to SEK 3.43 last year. Let's look more closer at the EBIT bridge on the next page. The organic part had a positive impact on earnings in the quarter. This was primarily driven by price increases, where contribution from price was especially good from North and Latin America.
I'm very pleased that all business areas reported positive price in the first quarter. Together with this, we also delivered a positive mix. Sales volumes had a negative impact due to continued private label decline in North America, but also from lower volumes in Latin America and in Australia. Headwinds continued to be on a high level with raw materials and tariffs of SEK 436 million in the quarter and a negative currency effect of SEK 323 million, driven by negative transactional currency effects year-over-year. This negative impact was mainly within the emerging markets currencies such as the weaker Argentinian peso and Brazilian real. In Asia-Pacific and MEA, we continued to face a currency headwind driven by the Australian dollar depreciation. In Europe, the stronger U.S. dollar and the weaker Russian ruble impacted negatively. Net cost efficiency came in as planned.
We continued to have high traction on our underlying cost productivity, but this was offset by higher cost inflation as well as investments in marketing and R&D to support our product launches. To sum up, despite significant headwinds as well as lower private label volume, the underlying EBIT was fairly in line with last year. I'm very pleased to see that all our business areas contributed to the 3.5 percentage point EBIT margin accretion for the group from a price and mix perspective. In Europe, we had favorable product mix fueled by market share gains within built-in kitchen. Price was slightly positive, mainly from price increases implemented in the first quarter across regions, but also from some carryover from last year. In North America, price improved sequentially versus the previous quarter.
We saw carryover effects impacting positively, but we also executed on additional price increases in the beginning of the quarter. In Latin America, the previously implemented price increases also show a positive effect with a good EBIT contribution. In Asia-Pacific and MEA, the price actions we have previously taken in Australia contributed positively, and mix remained positive, partly related to the strong growth we had in Southeast Asia, especially in the laundry category, but also from the good growth of the multi-door category in Australia. Professional products benefited from both positive price and mix across markets. Looking into cash flow for the quarter. Cash flow after investments, but before acquisitions, was negative SEK 2.8 billion and was fairly in line with previous year. Cash flow for the first quarter is normally low since there is a seasonal buildup of inventories.
The cash flow from working capital in the first quarter of 2019 also reflected this trend. The average operating working capital in relation to rolling 12 months net sales showed an increase to 4.4% versus last year's 3.9%. The sales mix shift between our business areas, a somewhat increased inventory level, as well as acquisitions with slightly higher working capital levels were the main factors impacting the trend. As previously highlighted, the working capital efficiency we have achieved over the last 10 years are expected to flatten out and remain at a healthy level. In Q1, we also fully paid the fine of SEK 0.5 billion relating to the French Competition Authority investigation that was concluded last year. Investments were higher than last year, as previously communicated, due to the ongoing investment projects in re-engineering in this quarter, primarily in Anderson.
As we highlighted back in March, from a financing perspective, we believe that shaping living for the better is an advantage and a strength for us. We recently issued our first green bond based on a newly developed green bond framework to support climate investments and other environmental initiatives. With that, I would like to hand back to you, Jonas, to review our outlook and to summarize the quarter. The outlook. Yes.
Thank you very much, Therese. Starting with the market outlook. Overall demand trend across regions is continued to be expected to be mixed. We continue to expect market demand in 2019 in Europe to be slightly positive and in Southeast Asia to be positive. However, tariffs have triggered price increases, resulting in somewhat weaker demand in North America, while we expect industry volumes to be softer than initially expected, hence slightly negative. In Australia, a slower property market is impacting demand, and we expect market volumes to be slightly negative. Latin American market recovered faster than initially anticipated in the quarter, driven by Brazil, and is now expected to be slightly positive for the full year.
Turning to the business outlook, we expect the favorable organic contribution to continue, driven by higher prices. We're also in a phase of extensive product launches aiming to further improve our mix contribution. We do expect private label volumes in North America to continue to be significantly lower, but price increases is our main tool to mitigate cost inflation, and we expect prices in Q2 and for the full year to fully offset external headwinds. We now estimate negative year-over-year impact from raw materials and tariffs to be in the range of SEK 1.4 billion-SEK1.6 billion in 2019, based on current levels when it comes to trade tariffs, versus our previous estimate of SEK 1.7 billion-SEK 2.1 billion. The range reflects the remaining uncertainty around some raw material exposures, especially in chemicals. Net cost efficiency is negative in Q2 and for the full year 2019, as previously indicated.
We will invest more in innovation, R&D, and marketing and brand support to support the new product launches that are intended to drive organic growth and mix contribution. Compared to Q1, we will see a step up in these investments in the second quarter. In addition to these investments, manufacturing transition costs in North America and increased inflation will not be fully offset by our continued good growth savings. The currency headwind for 2019 remains at about SEK 300 million based on currency rates per the 24th of April. Lately, the transactional headwinds have increased, but this has been partly offset by a translational tailwind. CapEx projects are continuing, and we will strengthen our competitiveness through automation and modularization, mainly focused on North America and Latin America. Hence, we continue to expect CapEx of around SEK 7 billion in 2019.
In summary, we continue to execute on our profitable growth strategy, and I'm particularly pleased that our price execution is now fully offsetting the strong headwinds we've been seeing in the last year or so. Most of our business areas showed organic growth, and all of them improved both price and mix, which is really showing the strength of our strategic execution. We have strengthened the professional beverage offering further through the acquisition of the French coffee machine manufacturer UNIC, on top of the continued good organic growth that we see in professional. Our re-engineering, as mentioned, our re-engineering programs remain fully on track. With that, I would like to turn over the word to Sophie and start our Q&A session.
Thank you, Jonas. We will now open up for Q&A. Please, moderator.
Thank you. Ladies and gentlemen, if you haven't already, could you please press zero and then one on your telephone keypad now, and you'll join the queue. After I announce you, simply ask that question. If you find that question has been answered before it's returned to speak, just press zero and then two to cancel. Our first question is over the line of Andreas Willi at JP Morgan. Please go ahead. Your line is now open.
Good morning, everybody. I have a question on price versus cost, and then one on accounting. On price versus cost, you still expect to fully offset the headwinds, but now you've reduced the headwinds by a few hundred million SEK. Have you also assumed that it may be more difficult for some of these price increases to stick if everybody has lower headwinds? Related to that, do you see any increase in promotional activity in the U.S. on the back of the weak Q1, maybe also what you expect into Memorial Day and so on? The question on accounting-
Maybe start with that one first.
Yeah.
I think there are a couple of different parts to the question, of course. The first one is that the tariffs, the range previously was, of course, impacted by the possibility that tariffs on Section 301, List 3 would go to 25%. We no longer assume that, even though it's of course possible. We don't assume that in our outlook, and that's very transparent. Of course, in the first quarter, the prices that we had realized, let's say net net, were reflecting that 10% level. That's one part of it. Going forward. Of course, we're continuing to see significant headwinds, even though they're slightly lower than we had indicated, We still have to generate a good continued price performance to offset those. I think it's a little bit premature to call that a significant positive contribution.
Of course, we continue to be very vigilant in protecting our pricing and our mix in combination. When it comes to North America, I would say we're not seeing massive promotional activity at this point, but it's probably fair to say that, of course, the weaker start to the year puts some pressure on the market in terms of promotional activity as we go forward. Nothing remarkable to say about that at this point. Back to your second question, sorry.
Thanks very much. On the IFRS impact, maybe you could highlight what the benefit is on the operating profit, either for the quarter or annualized. When you talk about your cash flow, why are you not adjusting the kind of optical benefit from IFRS 16 on your cash flow definition, like some of your Scandi peers have done, which seems to be about SEK 1 billion on an annualized run rate?
When it comes to IFRS 16, for us it has a very minor impact. It is a shift, as you say, between our operating income and the finance net, but it's not significant for us to call out. When it comes to the cash flow statement, you do see it if you look into the detailed one. We actually had the discussion around it during the quarter. We also have a note, we do believe that the information is clearly there.
Okay.
Maybe just if you could highlight what it is in terms of what shifts from EBIT into interest. It seems to be like SEK 50 million-SEK 60 million. Is that correct?
We don't-
For the quarter.
Yeah, we don't. No.
No, it's less than that.
It's much less than that.
Yeah.
Yeah.
There were other reasons why interest expense went up quite a bit?
The other reason that we have is that we are in some high inflationary countries. We also do see some true increases in the underlying interest rate. The increase that you saw in the quarter year-over-year was not totally related to the IFRS 16.
Thank you very much.
Thank you.
We'll now have the line of Andre Kukhnin at Credit Suisse. Please go ahead. Your line is now open.
Good morning. Thanks so much for taking my questions. Firstly, just to follow up on the change in the raw materials and the tariff guidance. Was any of that due to raw materials or was that entirely due to the change of view on Section 301 of this treaty?
It's a combination, where we've seen certainly in the beginning part of the quarter, steel and some plastics continuing down, and we've been able to lock in some more contracts on that. Of course, in the latter part of the quarter, we actually saw some increases, particularly in oil. There is some remaining uncertainty, and that's reflected in the range that we're showing. It's a combination of tariff and some lower prices that we're able to secure.
If I were to venture a guess of it being roughly 50/50, maybe slightly skewed more towards tariffs as the sort of that SEK 400 million change.
It's a bigger impact in the higher end of the range and smaller in the low end of the range, I guess is the way to think about it.
Okay. Thank you very much. Just on APAC performance in the quarter and the profitability there. Obviously, not fully comparable numbers to what we worked off given the change in small appliances. Is there anything we should be aware of there in the profitability performance in the quarter that is of a one-off nature? Or was there an underlying change in run rate?
Yes. The numbers that we're showing in the release are comparable year-over-year, so they're fully adjusted, just to be clear on that.
Sure.
When we come to the specifics of the quarter, there's essentially three effects. One is the significant currency headwind that we're seeing impact mainly Australia, but also some of the other Southeast Asian currencies. Secondly, we saw a weak market in Australia. The other ones were actually quite okay, but Australia was quite weak in the quarter, and that was mainly, I would say, driven by the weak housing markets that's actually quite weak right now. It seems like this is relatively volatile in Australia. We're in a kind of a weak spot in terms of the housing conditions. Thirdly, we have invested quite significantly in product launches and also manufacturing ramp up in the quarter.
It's maybe not of a one-off nature, but it's a higher than normal rate of spending both for manufacturing ramp up of particularly this multi-door refrigerator that I showed and also some big product launches that we're executing right now in Australia. Going forward, I think we remain very confident about our ability to operate and grow profitably in APAC and MEA. It's a soft spot in Australia right now, but we're launching a lot of new products that we expect to be really winning in the marketplace. We have good confidence in our overall outlook there.
Got it. Thank you. If I may, just last one. On 100-year anniversary, is there anything that you're planning there in terms of promotional activity? Just thinking back to Frigidaire last year, that is not yet reflected in your current NC guidance.
No. Of course, we'll celebrate it, but not in a way that will be very costly, and we won't have specific promo programs for it. Of course, the launch of the new Electrolux range in Europe but also in Australia, of course, we'll call out the 100-year celebration and the new platform for the brand and our sustainability focus, which are really winning points for us. It won't be an additional cost driver beyond the launch cost that we're seeing in all those ranges.
Great. Thank you very much.
Sure.
We are now over to the line of Johan Eliason at Kepler Cheuvreux. Please go ahead. Your line is open.
Yes. Thank you. Thank you for taking my call. Congratulations to a good quarter. Could you give us an update of how the automation plants in North America is developing? I think you showed us a picture at the Capital Markets Day. Are you still fairly confident that you will be up and running on full speed at the end of the year for the U.S. plant?
Yeah, absolutely. We are starting the ramp up here in the summer. Yes.
How do you see the benefits coming through? Will it be a tool for you to regain some lost market share from your private label decline, or is it primarily aimed at improving the margin?
I would say these products will be both very cost competitive and offer fantastic features for our consumers. The objective is both to be more cost competitive and margin accretive and to regain share or continue to gain share for Frigidaire, where overall we are on a quite positive trend, as you know.
Just to quantify, how big a share of your turnover in North America will be impacted from this transition from today's manual to automated manufacturing?
The first one, I don't have exact numbers for you, but the first one here is probably around 20%, I would say. We'll have to come back to you on that exact number. For cooking, that's another 25% or so of our turnover. Maybe closer to 25% of the refrigeration one as well, yeah.
Yeah.
I'm trying to do the math quickly in my head here. Yeah.
Yeah. No, that's good enough for me. Thank you very much.
We're now over to the line of Jack O'Brien at Goldman Sachs. Please go ahead. Your line is now open. Hello, Jack O'Brien, please go ahead with your question.
Hi, good morning, everyone. First question is just on the pricing, obviously coming through nicely this year. Can you give us a bit more color on the net U.S. pricing you saw in 1Q? I think 4Q was probably roughly 2.5%. Obviously, at a gross level, it was stronger, but just interested in what you saw from a net perspective in 1Q.
Yeah. Netting would be a little bit above 3%.
Okay. Thank you. My second question is just on restructuring costs. They're about SEK 1 billion in the first quarter. Should we be expecting any additional restructuring costs during the rest of the year?
Yeah. We don't have anything new to announce there, but I think as we indicated also in our Capital Markets Day, that in some of the cases here where we're doing these significant re-engineering programs, it gives us the opportunity to consolidate our manufacturing footprint a bit. I can't guarantee that there won't be more, but we're assessing that on a case-by-case basis just to make sure that we get the most out of our modularization and automation investments.
Okay, thanks. Just one final question on the net cost efficiencies guidance, this unfavorable number. I think some people I've been speaking to in the market have been talking about roughly half a billion SEK negative, given increased investments and the absence of some of the 2018 one-offs which benefited you. How should we be thinking about that number? Can you give us some more color?
No, I think we're sticking with the guidance we gave that in the second quarter, it will be higher negative than in Q1, and for the full year, it will be also a higher run rate than the first quarter, let's say, negative.
Okay, thank you.
Yes.
We are now over to the line of Olof Cederholm at ABG Sundal Collier. Please go ahead with your question. Oops, sorry. I do apologize. We've just lost him for a second. I'm just going to bring him back. I do apologize. Okay. Sorry, Olof, your line is now open. Sorry, we seem to be having an echo from your line.
Hello, everyone.
Sorry. If you wait one second. Okay, please go ahead with your question, Olof. Your line is now unmuted, and there is no echo.
Fantastic. Thank you. Hi, everyone. It's Olof from ABG. I have a question on price mix going forward. With the price increases that you've done so far this year, I assume not the full effect from those was reflected in Q1. Should we see an increasing year-over-year support from price increases and mix in Q2 over Q1? If we start there.
Yeah. I would say most of it was reflected in the first quarter, as most of the price increases, both in Latin America in particular, but also in North America, were executed towards the end of last year or the very beginning of this year. However, there will be some minor further positive effects as we go forward.
Okay, perfect. Looking at North America, maybe I missed this earlier on the call. I apologize in that case. You're still suffering from the weak private label. How much is that out of the total now, and how much were your branded products growing in the quarter?
Yeah. Private label now, we're not going to disclose the exact split going forward. The current run rate that we're seeing is probably what we expect to continue for the next several quarters. It's a very significant reduction year-over-year. We did not grow, just to be clear, we did actually not grow net volumes in our branded business. We gained share in a declining market. There was this slight negative also on our branded business in terms of sales volumes.
Perfect. Also, lastly from me, could you give us an update on the profile of the cost savings on a group level coming from the investments in the production platform? Is there any change to those numbers, and will there be an effect this year?
Right. I think we gave a fair amount of detail on that in the Capital Markets Day. That for sure very much remains. Now, in the second half of this year, we will start to see those benefits. They're, as we've guided for before, are offset or more than offset by double running costs as we're ramping down essentially two manufacturing sites and ramping up a third one. Yeah, two of them are under, let's say, the same roof. That's still what's happening. There's some fairly substantial manufacturing double cost during that ramp down/ramp up period.
Yeah. That's reflected in your net efficiency?
Yeah.
Net cost efficiency, I guess.
Correct.
Perfect. Thank you. That's all for me. Thank you.
Thank you.
Okay. We now go to the line of Krister Magnergård at DNB Markets. Krister, please go ahead. Your line is now open. Actually, I'm going to re-close your line as, Krister, we're getting a massive echo from your line, which was causing the echo earlier. Because of that, I'm afraid we're going to have to go on to the next person, who is Ji Xiong at Citi. Please go ahead. Your line is open.
Yeah. Hi. Ji at Citi. I just have one question on your LatAm division. Over the last week or so, we've seen the Argentinian peso depreciate to basically record level lows. Could this potentially have any impact on your outlook for the LatAm region, should these weak currency levels continue?
Yes. Of course, that has an impact. In fact, we have updated our currency outlook up till the 24th of April to reflect that. That's a little bit what I indicated that we see more transaction headwinds, but as a result of the stronger dollar versus the crown in particular, we also see some positive translation headwinds. Sorry, favorable winds in translation. That's why net, the SEK 300 is unchanged. Yes, there is a more unfavorable impact, mainly in Latin America, both Argentina and in Brazil. Yeah, it's a very volatile environment, there's no question about that. We're monitoring closely and raising prices accordingly to address that. As I started out, we actually saw fairly good growth in demand in Brazil in the first quarter. Yeah, the underlying demand levels are very low and very suppressed.
I think the market wants to grow, of course there's all this volatility on top of it. We're managing that very tightly.
Thank you.
Sure.
Okay, we're now to the line of James Moore at Redburn Partners. Please go ahead. Your line is open.
Good morning, everyone. Jonas, hi. I wonder if I could ask a couple on the U.S. and one on launches. On the U.S., the air conditioning market looks like it's had a good start to the year from the AHAM data, but that's not always the same for you guys. Can you give us a flavor for how your air conditioning business developed in the quarter? I know over time, we have years where you can make quite a lot of profit in the first half from air conditioning and other years where you don't. Is this a more favorable year helping the numbers?
Year-over-year, we did see growth in our air conditioning business. As you recall, we lost a big contract last year, and we have not regained that because that was a two-year deal, but we are growing in other channels from that lower base. It is a substantially lower base than it has been in prior years, but we're growing versus last year.
On the top line and on the bottom line, does that mean it's therefore similar to last year and hasn't moved back to some of the prior levels?
Yeah. No, not to the prior levels, of course, since we lost a fair amount of volume there overall.
On U.S. volumes, the market's obviously down. To what degree do you think that's elasticity due to pricing, or do you think that's a function of residential weakness? I see starts are down 10% in the last six months or so. I don't know if that's fed into your market yet, or that's something pending.
It's quite difficult to assess. Particularly on a year-over-year basis, just because last year, if you recall, we had, in particular, the laundry tariffs coming into place, which resulted in some significant shipments into retail in Q1, which kind of boosted that number. We were up 6% last year. This year, we're down 7%. I would say underlying, if you look at the retail demand, we don't have good data on that yet for Q1, anecdotally, demand was down there. Retail demand was down as well, much less than the headline AHAM number, which is then sell in to retail.
Yeah.
I do believe that there is price elasticity for sure. Particularly since there is so much attention to the tariff situation. Also now some speculation that tariffs will go away. Maybe people are waiting a bit to see if prices are coming down for purely discretional purchases. I think that can have some impact. Finally, to your point, for sure, housing starts has an impact on demand in the quarter. We've seen, as you said, quite of a, I call it short-term dip in housing starts, probably driven by the higher mortgage rates that we saw in the second half of last year, as well as some affordability issues. On the other hand, those mortgage rates are now.
Yeah
on the way down again. Very recently, you've seen some comeback in terms of housing numbers. It's a little bit difficult to read the outlook there. Overall, we remain reasonably optimistic on the fundamental health of the U.S. market. Of course, these swings in housing and these price elasticity factors do have an impact.
Thanks. Just lastly, on mix, if I could. You've done an increasing amount of launches in recent years and then sped up your innovation, which is having a great effect on mix. It's often difficult year-on-year to think about whether new launches are bigger than old launches.
Right.
In your mind, going forward for the next 12 months, what are the big items out there, and are they net positive on a year-on-year basis to mix?
Yeah
actually, have you had the big ones?
They're net positive year-over-year on mix, it's actually probably one of our biggest launch years, at least that I can remember. I mentioned, of course, the European Electrolux range that we're launching. We're actually launching more or less the same range in Asia Pacific. In North America, we're launching this very large new range of refrigerators, as you know. Actually, in Brazil in particular, we're also launching some significant new refrigeration products. That's kind of on top of the ongoing, let's say, product refresh and launches that we're doing at a more accelerated pace than we have historically as well. When you add that up, it becomes a solid contributor to our performance on an ongoing basis.
Thank you very much.
Sure.
I'm happy to say we're now going back to the line of Krister Magnergård of DNB Markets. Please go ahead, Krister, your line is open.
Hi there, Krister. You can hear me now, I guess? I had to call in again, I missed James' questions. He normally asks quite intelligent questions, I guess I'm just going to ask the same questions. I heard something about air cons.
Yeah.
Just last year, you had problems with one of your competitor being quite aggressive on air cons. How does that look this year in terms of listing and also pricing?
Yeah, I think we were transparent last year that we lost a big contract, a big distributor, and we haven't regained that, but we did gain with other distributors and retailers in the quarter year-over-year. Overall, we gained versus prior year, but we're far from back to the levels of the year before that.
Okay. The second question, a follow-up on Olof's questions, a question about double production in North America. Given that you will have continued high marketing spending for the launches also going into Q3, Q4 from the Q2 levels. We will see a further ramp-up in net cost or negative net cost savings also in Q3, Q4 compared to Q2.
No, it's probably less that level that we expect to see for the rest of the year.
Okay, thanks. That was it for me.
Okay, we now go back to the line of Andreas Willi at JP Morgan. Please go ahead, your line is open again.
Yeah, thanks very much. I just had a follow-up to James' question on the U.S. market. What's your view on the replacement market? Whirlpool called out in its conference call that they see that as also contributing to the weaker market, that we are now replacing the 2007, 2008, 2009 vintages of appliance sales in the U.S., which were 25% lower than the 2004, 2005, 2006. Where do you believe we are in this replacement cycle? Is this assumption of kind of average 11 years, is that still relevant?
Yeah, we don't have super detailed data on that, we think the replacement cycle impact is similar this year to last year down from the peak. I think we saw the peak of that back in 2016, 2017, then started to drop in 2018, relatively flat to maybe slightly negative this year as well. Of course, it's not a straight 10 year. It's much more spread out or 11 years is much more spread out than that. I think you see these things averaging out over a lot more years than just sort of one peak to trough comparison.
Thank you.
Sure.
As there are no further questions at this stage, could I please pass the call back to you?
Thank you very much. Thanks for the interest and the good questions. Just in summary, as mentioned before, we're executing on our profitable growth strategy. We see good organic growth in four out of our five business areas, mainly driven by higher price realization and positive mix in all business areas, with price fully offsetting the headwinds. We're continuing on this route. As mentioned extensively during this call, we have a lot of exciting product launches, both currently and ahead of us, and we're really excited about the outlook for the rest of 2019. Thank you very much for your attention, and look forward to speaking to you all soon again.