Good morning, and a warm welcome to the first quarter 2019 results presentation. With me today I have our CFO, Thijs Fieldberry 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 web 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, and 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 but 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. And our strong price realization now fully offsetting these headwinds. We took a restructuring charge of SEK 1,054,000,000 relating to the consolidation of manufacture 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 2 important highlights from our market activities. We're strengthening our global offering of refrigeration in the attractive and fast growing multidoor 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 multidoor refrigerator was launched in Australia and New Zealand late 2018 and now in the first quarter 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 comparative 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 the focus on growing our profitability further in the premium segment 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 January 2019. Integrating Home Care And SDA in the regional business areas.
Starting then with Europe, we had strong performance in the quarter with an organic growth 4.4%. And 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, and 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%.
And 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. And the European market remained supportive, and we've seen demand increase across most European markets in the quarter.
However, we believe there were some pre buying activity in the UK in advance of a possible hard Brexit at the end of March. Turning to North America. We continued to improve our price and also mix improved significantly in the first quarter. We gained share in our core branded products despite the market weakness but volumes to continue to decline in, mainly in private labels. The price increases more than offset raw materials and tariff headwinds in First Quarter but 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. And we took a restructuring cost for the Memphis consolidation in the quarter of SEK 829,000,000. The reengineering 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 conditioners air condition products was up 1%, resulting in total major appliances down by 4%.
The weak industry shipments overall is partly explained by the higher prices 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, but also because of lower promotions and discounts in Brazil in the quarter. Mix was positive, but volumes declined due to higher prices some shipment timing issues and the weakness in Argentina.
Underlying earnings excluding nonrecurring items were fairly in line with last year. And 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 225,000,000 for the consolidation of refrigeration manufacturing in Chile. And also in Latin America, our reengineering 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 EMEA, combined with improved mix while volumes in Australia declined impacted by the higher prices. Price and mix both continued 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 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 session of the French professional espresso machines manufacturer unique. And the preparation for the intended separation of professional is proceeding And as mentioned before, the ambition is to list the company in the first half of twenty twenty. With that, I'd like to leave the word to Terje Sridbury 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 percent, while translation currency impact was positive of 4.8%. So in total, sales was up 6.4%. Operating income, excluding nonrecurring 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. And all in all, our operating margin, excluding nonrecurring item, came in at 4.4%. Ownings per share excluding nonrecurring items was SEK3.25 compared to SEK3.43 last year. Let's look more closer at the EBIT bridge this was primarily driven by price increases, where contribution from price was especially good from North And Latin America. And I'm very pleased that all business areas reported positive price in the first quarter.
And 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 continue to be on a high level with raw materials and tariffs of SEK 436,000,000 in the quarter and a negative currency of SEK 323 1,000,000, driven by negative transactional currency effects year over year. This negative impact mainly within the emerging markets currencies, such as the weaker Argentinian peso and Brazilian real. And in Asia Pacific and EMEA, we continued to face 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 continue 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 prices 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 by also executed on additional price increases in increases also show the positive effect with a good EBIT contribution. In Asia Pacific and EMEA, 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 but also from the good growth of the multi door category in Australia. Benefited from both positive price and mix across markets.
And then looking into cash flow for the quarter, Cash flow after investments, but before acquisitions, was negative SEK2.8 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 0.9%. And 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 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 reengineering 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. So we recently issued our first green bond based on a newly developed green bond framework to support climate investments and other environmental initiatives.
And with that, I would like to hand back to you, Jonas, to review our outlook and to summarize the quarter.
You very much, Terias. 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 and 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 a favorable organic contribution to continue, driven by higher prices, And 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 to mitigate cost inflation. And we expect prices in Q2 for the full year to fully offset external headwinds. We now estimate negative year over year impact from raw materials and tariffs to be the range of CHF 1,400,000,000 to CHF 1,600,000,000 in 2019 based on current levels when it comes to trade tariffs versus our previous estimate of CHF 1,700,000,000 to CHF 2,100,000,000.
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 or in 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 gross savings. The currency headwind for 2019 remains at about SEK 300,000,000 based on currency rates for the 24th 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 Nest through automation and modernization, mainly focused on North America and Latin America, hence we continue to expect CapEx of around SEK 7,000,000,000 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. Through the acquisition of the French coffee machine manufacturer unique on top of the continued good organic growth that we see in Professional. And our reengineering, as mentioned, our reengineering programs remain fully on track.
With that, I would like to turn over the word to Sophie and start our Q and A session.
Thank you Jonas. So we will now open up for Q and So please moderator.
Thank
you.
You.
And if you find that question has been answered before its return to speak, just press 0 and then 2 to cancel. And our first question is over to the line of Andreas Ville 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 you still expect to fully offset the headwinds, but now you've reduced the headwinds, by a few 100,000,000. Should we therefore expect now a net positive for the year from price mix versus raw materials and FX? Or have you also assumed that it may be more difficult for some of these price increases to stick if everybody has lower headwinds?
And related to that, do you see any increase in promotional activity in the U. S. On the back the weak Q1 and maybe also what you're expecting to Memorial Day and so on? And the question on accounting.
So, so yeah, I think there are
a couple of different parts to
the question, of course. The first one is that that tariffs, the range previously was, of course, impacted by the possibility that tariffs on Section 31, List 3 would go to 25 percent, we no longer assume that, even though it's, of course, possible, but we don't assume that in our outlook. And that's very transparent. And of course, in the first quarter, the prices that we had realized, let's say, net net were reflecting that 10% level. So that's one part of it.
Then going forward, yeah, of course, we're continuing to see significant headwinds, or even though they're slightly lower than we had indicated, we still have to generate a good continued price performance to offset those. So I think it's a little bit premature to call that a significant positive contribution. But of course, we continue to be very vigilant in protecting our pricing and our mix in combination. Now, when it comes to North America, I think it's 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.
So back to your second question, sorry.
Yes, 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 And when you talk about your cash flow, why you know that trusting the kind of optical benefit from IFRS 16 on your cash like some of your Scandi peers have done, which seems to be like about SEK 1,000,000,000 on an annualized run rate?
Yes, when it comes to IFRS 16, for us, it has a very minor impact there. So it's yes, 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 And then when it comes to the cash flow statement, I mean, you do see it if you look into the detailed one. And yes, we actually had the discussion around it during the quarter. We also have a note, so we do believe that the information is clearly there.
But on maybe just if you could highlight what it is on in terms of what shifts from EBIT into interest? Is it seems to be like SEK 50,000,000, SEK 60,000,000, is that correct?
We don't
for the quarter.
Yes, we don't no, no. No, it's less than that. It's much less than that.
Yes. So there
were other reasons why interest expense went up quite a bit.
Yes. The other reason that we have is that we are in some high inflationary countries. So we also do see some true increases in the underlying interest rates. So 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 tariffs guidance, Was any of that due to raw materials, or is that entirely due to the change of view on section or 1, this 3?
No, no, it's a combination where, 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. Then of course, in the latter part of the quarter, we actually saw some increases, particularly in oil. So there is some remaining uncertainty, and that's reflected in the range that we're that we're showing, but it's a combination of tariff and some lower prices that we're able to secure.
And if I were to venture a guess of it being roughly fifty-fifty, maybe slightly skewed more towards tariffs as the sort of that $400,000,000 change?
It's a bigger impact in the higher end of the range and smaller in the lower end of the range, I guess, is the way to think about it.
Okay. Thank you very much. And just on Asia Pac performance in the quarter and the profit there are obviously not fully kind of comparable numbers to what we worked off, given the change in small appliances, but Is there anything we should be aware of there in the profitability performance in the quarter that is of a one off nature or Or was there an underlying change in run rate?
Yes. So 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. But
Sure.
But when we come to the specifics of the quarter, we there's essentially 3 effects. 1 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, particularly as 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. So it seems like this is relatively volatile in Australia.
So we're in kind of a spot in terms of the housing conditions. Significantly in product launches and also manufacturing ramp up in the quarter. It's maybe not of a one off nature, but it's higher than normal rate of spending, both for, for manufacturing ramp up of this, particularly this, a multidoor refrigerator that I showed and also some, some big product launches that we're executing right now in Australia. So going forward, I think we remain very confident about our ability to operate and grow profitably in APAC EMEA, there's 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. So, so we have good confidence in our overall outlook there.
Got it. Thank you. And 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 kind of reflected in your current NCE guidance?
No, no, there won't be any, well, mean, we of course, we will celebrate it, but not in a way that will be very costly. And we won't have specific promo programs for it. However, though, Of course, the launch of the new Electrolux range in Europe, but also in Australia, of course, we'll call out 100 year celebration and the new platform for the brand and our sustainability focus, which are really winning points for us, but it won't be additional cost driver beyond the launch costs that we're seeing in those ranges. Great.
Thank you very much.
We're now over the line of Johan Eliason at Kepler Cheuvreux. Please go ahead. Your line is open.
Yes, 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?
Yes, absolutely. We're starting to ramp up here in the summer. So yes.
And 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. So the objective is both to 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.
And just to quantify, how big share of your turnover in North America will sort of be impacted from this transition from today's manual to automated manufacturing?
So the first one, I don't have exact numbers for you, but the first one here is probably it's around 20%, I would say. We'll have to come back to you on that exact number. And then, and then for, cooking, that's another 25% or so. Dollar turnover. Maybe maybe closer to 25 of the refrigeration 1 as well.
Yeah.
I'm trying
to do the math quickly in my head here. Yeah.
That's good enough for me. Thank you very much.
We're now over the line of Jack O'Brien at Goldman Sachs. Please go ahead your line is now open.
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?
Yes, net it would be a little bit above 3%.
Okay, thank you. My second question is just on restructuring costs, so about SEK 1,000,000,000 in the first quarter, should we be expecting any additional restructuring costs during the rest of the year?
Yes, we don't have anything new to announce there, but But, I think as we indicated also in our Capital Markets Day, that some in some of the cases here, where we're doing these significant reengineer programs. It gives us the opportunity to consolidate our manufacturing footprint a bit. So I can't guarantee that there won't be more, but 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. And 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 sort of roughly 1,000,000,000 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, I think we're kind of 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.
We are now over to the line of Olaf Sederholm 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 an echo from your line.
Okay. Please go ahead with your question, Olaf, your line is now unmuted and there is no echo.
Fantastic. Thank you. Hi, everyone. It's Olaf from ABG. The I have a question on pricemix going forward.
Will with the price increases that you've done so far this year, I assume not the full effect from those it in Q1. Should we see an increasing year over year support from price increases and mix in Q2 over Q1? If we start there?
Yes, I would say most of it was reflected in, in the first quarter as most of the price increases both in, Latin America in particular, but also in North America, we're executed towards kind of the end of last year or the very beginning of this year. However, there will be some minor further positive effect as we go forward.
Okay. Perfect. And, looking at at North America, maybe I missed this earlier on the call. I apologize in that case, but you're still suffering from the weak price label, how much is that out of the total now and how much were your branded products growing in the quarter?
Yes, so private label now, and we're not going to disclose the exact split going forward, but it's a the current run rate that we're seeing is probably what we expect to continue for the next several quarters and it's a significant very significant production year over year. And we did not grow, just to be clear, we did not actually not grow net volumes in, in our branded business, but we gained share in a declining market. So there was slight negative also on our branded business in terms of sales volumes. Perfect.
And 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 will there be an effect this year?
Right. So I think we gave a fair amount of detail on that in the Capital Markets Day, and that, for sure, very much remains Now in the second half of this year, we will start to see those benefits, but they're, as we've guided for before, are offset or more than offset by kind of double running costs as we're ramping down essentially 2 manufacturing sites and ramping up the third one, yes, 2 of them are under, let's say, the same roof, but that's still what's happening. So there's some fairly, substantial manufacturing double costs during that ramp down ramp up period.
Yes. And that's reflected in your net efficiency net cost efficiency, yes. Correct. Thank you. That's all for me.
Thank you.
Okay. So we now go to the line of Krista Magnagard at DNB Markets. Krista, please go ahead. Close your line. As Chris said, we're getting a massive echo from your line, which was causing the echo earlier.
So because of that, I'm afraid, we're going to have to go on to the next who is jichyong@city.
I just have one question on your LatAm division. So over the last week or so, we've seen the Argentinean 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. I mean, of course, that has an impact. And in fact, that's we have updated our currency outlook, or up to the 24th April to reflect that. And that's a little bit what I indicated that, we see more transaction headwinds, but as a result of the stronger dollar versus in particular, we also see some positive translation headwinds. So that's why it's our favorable wins in translation.
So that's why net net the 300 is unchanged, but yes, there isn't more unfavorable impact mainly in Latin America, both Argentina and in Brazil. And And, yeah, it's a very volatile environment. There's no question about that. And we're monitoring closely and raising prices accordingly, to address that. But as I started out, we actually saw a fairly good growth in demand in Brazil in the first quarter.
So yes, the underlying demand levels are very low and very suppressed. So I think the market wants to grow, but of course then there's all this volatility on top of it. So we're managing that very tightly.
Thank you. Sure.
Okay. We'll now take the line of James Moore Redburn Partners. Please go ahead. Your line is open.
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 AAM data, but that's not always the same for you guys.
Is that been can you give us a flavor for how your air conditioning business developed in the quarter? And I know over time we have years where you can make quite a lot of profit in the first half of air conditioning and other years where you don't. Is this a more favorable year helping the numbers?
So year over year, we did see growth in our air conditioning business. As you recall, we lost a big contract last year. We have not regained that because I mean, that was a 2 year deal, but we are growing in other channels from that lower base. So 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?
Yes, no, not to the prior levels, of course, since we lost a fair amount of volume there overall.
And on U. S. Volumes, the markets 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 6 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 them, 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 sort of some significant shipments into retail in Q1, which kind of boosted that number. So we were up percent last year. And then this year, we're down 7%. I would say underlying and if you look at the retail demand, we don't have good data on that yet for Q1, but anecdotally, demand was down there on retail demand was down as well, but much less than the headline AAM number, which is then sell in, right, sell into retail. Now I do believe that there is, price elasticity for sure, and particularly since there's so much, attention to the tariff situation and also now some speculation that tariffs will go away and then maybe people are waiting a bit to see if price coming down for purely discretionary purchases.
I think that can have some impact. And then finally, to your point, for sure, housing starts has an impact. On demand in the quarter. And we've seen, as you said, quite of a I would call it short term dip in housing starts, probably driven by the higher mortgage rates that we saw in the second half last year as well as some affordability issues. But on the other hand, those mortgage rates are now on the way down again.
And very recently, you've seen some some comeback in terms of housing numbers. So it's a little bit difficult to read the outlook there. But overall, we remain reasonably optimistic on the over on the fundamental health of the U. S. Market.
But of course, these swings in housing and these price elasticity factors do have an impact.
And just lastly on mix, if I could, I mean, you've often 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, but it's often difficult year on year to think about whether new launch bigger than old launches. But in your mind, going forward for the next 12 months, what are the big items out there? And then, and are they net positive on a year on year basis to mix or actually if you have the big ones?
No, they're net positive year over year on mix and it's actually one of our 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, and actually in Brazil, in particular, we're also launching some significant new refrigeration products. And that's kind of on top of the ongoing, let's say, product refresh and launches that we're doing add a more, accelerated pace than we have historically as well. So when you add that up, it becomes a solid contributor, a contributor to our performance on an ongoing basis.
Okay. I'm happy to say we're now going back to the line of Magna Guard VNB Markets. Please go ahead, Krista. Your line is open.
Hi, Krista. You can hear me now, I guess. I had to, call in again. So I missed Ian's questions. He normally asks quite intelligent questions.
I don't just going to ask the same questions. But I heard something about air cons. Just last year, you had problems with one of your competitor been quite aggressive on AirCOMS. How does that look this year in terms of lifting and then also pricing?
Yes, 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. So overall, we gained versus prior year, but we're far from back to the levels of the year before that.
Okay. And then the second question, a follow-up on all of questions, a question about double production in North America. Given that you, I guess, 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 Q2, Q4 compared to Q2.
No. It's probably more or less that level that we expect to see for the rest of the year.
Okay. Thanks. I'll turn it with it for me.
Okay. We now go back to the line of Andreas Fililey at JP Morgan. Please go ahead. Your line is open again.
Thanks very much. I just had a follow-up to James's 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 20,078 9 vintages of appliance sales in the U.
S, which were 25% lower than the 20,456 is where do you believe we are in this replacement cycle? And is this assumption of kind of average 11 years? Is that still relevant?
Yes, we don't have super detailed data on that, but we think the replacement cycle impact is similar this year to last year and down from the peak. We saw I think we saw the peak of that back in 16, 17, and then started to drop in 'eighteen. And relatively flat to maybe slightly negative this year as well. And of course, it's not a straight 10 year, it's much more spread out or 11 years. It's much more spread out than that.
So I think you see these things averaging out over a lot a lot more years than just sort of one peak to trough comparison.
As there are no further questions at this stage, could I please pass the call back to you?
And 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 4 out of our 5 business areas, mainly driven by higher price realization and positive mix in all business areas. With price fully offsetting the headwinds. And 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.