AB Electrolux Cut to BBB- as Tariffs and Restructuring Sink SEK5.2B Cash Flow Through Mid-2025

S&P Global Ratings has knocked AB Electrolux (ST: ELUX-A) down a notch, lowering its credit rating from 'BBB' to 'BBB-'. The main culprit? Concerns over the company's cash flow, especially free operating cash flow, which is expected to be flat or slightly negative throughout 2025.

What's hitting Electrolux's cash? A mix of rising working capital needs linked to U.S. trade tariffs, an antitrust fine in France, and ongoing costs from previous restructuring efforts. These factors pushed the company into negative cash flow territory for the first half of 2025, with operations and investments draining roughly SEK5.2 billion.

Trade tariffs seem to be a thorn in Electrolux's side right now - the company has to shell out tariffs on imported components before it can recoup the costs from customers, tying up roughly SEK1.5 billion to SEK2 billion in working capital this year. S&P expects that number to ease to about SEK500 million in 2026 as the tariff impact dwindles and Electrolux tweaks its product mix.

On the investment front, Electrolux is still pouring between SEK4 billion and SEK5 billion annually into capital expenditures through 2026. The focus here is on trimming costs, boosting production efficiency, and pushing ahead with digital upgrades.

Debt-wise, the rating agency sees Electrolux maintaining a debt-to-EBITDA ratio between 3x and 4x. Notably, the company's leverage isn't expected to dip under 3x anytime soon, signaling a slower cleanup than some might have hoped. S&P's scenario assumes no dividends, no big acquisitions, and no share buybacks in the next couple of years, underscoring a clear priority on debt reduction and keeping its investment-grade badge intact.

Revenue growth is expected to stay sluggish, largely because consumer appetite for higher-end home appliances remains soft across Europe and North America. Economies aren't exactly booming, and shoppers appear more cautious about upgrading or replacing expensive kitchen and laundry gear.

That said, not everything is gloomy. Despite the top-line pressures, S&P expects Electrolux's EBITDA margin to inch higher into the 7% range by 2025 and beyond, lifted by cost-cutting efforts and a better price mix. The company has already slashed production costs by SEK2 billion in the first half of the year and aims for a total reduction near SEK3.5 billion to SEK4 billion by year-end.

Electrolux's foothold in the U.S. market, which accounts for about 30% of 2024 sales, looks steady. The presence of three manufacturing plants stateside (out of four in North America) helps cushion against tariff-driven cost pressures, alongside recognizable brands that keep the company competitive locally.

All in all, the stable outlook from S&P reflects confidence that Electrolux's cost programs and price adjustments will counterbalance tariff-related cost hikes, allowing margin improvements without tipping the credit picture further into risk.

So, will this downgrade mark a turning point for Electrolux, or just a temporary speed bump? Time will tell how tariffs, consumer behavior, and cost strategies play out.