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Investing.com -- S&P Global Ratings has downgraded AB Electrolux (ST:ELUXa) to ’BBB-’ from ’BBB’ due to weaker free cash flow prospects, while maintaining a stable outlook.
The rating agency forecasts neutral-to-slightly negative free operating cash flow (FOCF) for Electrolux in 2025, citing increased working capital requirements related to U.S. trade tariffs. The company reported negative cash flow from operations and investment of SEK5.2 billion in the first half of 2025.
The increased working capital needs stem from Electrolux paying tariffs on imported components and appliances faster than it can recover these costs through customer payments. Additional factors impacting cash flow include an antitrust fine payment in France and cash costs from past restructuring that S&P considers nonrecurring.
S&P expects high working capital requirements of SEK1.5 billion-SEK2.0 billion in 2025, projected to decrease to SEK500 million in 2026 as the company adjusts its product mix strategy and assuming tariff impacts subside. Capital expenditure is forecast at SEK4 billion-SEK5 billion annually in both 2025 and 2026, focusing on cost reduction, manufacturing efficiencies, and digitalization.
The rating agency anticipates Electrolux will maintain a debt to EBITDA ratio of 3x-4x, supported by its prudent financial policy. S&P no longer expects debt leverage to improve to below 3x from 2026. The forecast assumes no dividend payments, material acquisitions, or share buybacks in the next 24 months as the company focuses on reducing leverage and maintaining its investment-grade rating.
Revenue growth is expected to remain constrained in 2025 due to weak consumer demand for appliances in Europe and North America. S&P believes demand for high-value home appliances will stay subdued amid economic deterioration and low consumer confidence, with consumers likely postponing nonessential replacements or upgrades.
Despite these challenges, S&P forecasts EBITDA margins to increase in 2025 and 2026, supported by cost-saving initiatives and favorable price mix changes. Electrolux aims to reduce production costs by SEK3.5 billion-SEK4.0 billion in 2025, with SEK2 billion already achieved in the first half. The rating agency projects adjusted EBITDA margins to improve to nearly 7.0% in 2025 and 7.1%-7.3% in 2026, up from 5.6% in 2024.
S&P believes Electrolux can maintain its market position in the U.S., which represents 30% of its 2024 revenue, despite tariff-related cost inflation. This is attributed to the company’s largely local production footprint and well-known brands. Electrolux operates four manufacturing facilities in North America, with three in the U.S., producing most products sold in that market.
The stable outlook reflects S&P’s expectation that Electrolux will achieve its cost reduction program and offset tariff-related cost increases with targeted price increases, improving its adjusted EBITDA margin to 6.9%-7.3% in 2025 and 2026.
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