LG Household & Health Care’s earnings visibility dims amid weakness in the U.S. and China; target price: 320,000 won

[Financial News] Meritz Securities lowered its target price for LG Household & Health Care by 14%, from 370,000 won to 320,000 won, saying weakness in its U.S. and China businesses had reduced near-term earnings visibility. It maintained its “Buy” rating.
In a report on the 4th, Meritz Securities analyst Park Shin-ae said, “A diversified business portfolio is a strength in terms of earnings stability, but at present there is no clear driver to lead company-wide growth.”
LG Household & Health Care posted consolidated revenue of 1.5774 trillion won in the third quarter of this year, down 0.2% from a year earlier, and operating profit of 70.4 billion won, up 52.4%. Revenue and operating profit were 3.5% and 30.5% below market estimates, respectively.
Weakness in the cosmetics business was cited as the main reason operating profit fell short of expectations. The cosmetics division posted revenue of 660.8 billion won, down 0.3%, and an operating loss of 10.9 billion won. However, the loss narrowed by 37.7 billion won from the same period a year earlier.
Duty-free sales rose 146% on a low base, contributing to improved profitability. By contrast, U.S. sales fell 13% due to the high base following Costco’s entry into the market last year and the impact of the Avon sale. With the added base effect from the previous quarter’s Amazon Prime Day event, sales were down 34% from the previous quarter.
China sales also fell 21% year on year as Chinese influencers scaled back their livestream broadcasts. The decline from the previous quarter reached 35%, weighed down by the base effect of the “618 Shopping Festival” in the previous quarter. The U.S. and China subsidiaries both swung to operating losses as lower sales increased the burden of fixed costs.
Revenue in the household goods division rose 4%, but operating profit fell 3% as marketing investment increased. Revenue in the beverages division declined 3% due to weak sales of non-carbonated beverages. Operating profit also fell 20% amid pressure from raw material and component prices and intensifying promotional competition. Non-operating income and expenses included a disposal loss of 58.5 billion won related to the Avon sale.
Meritz Securities cut its forecast for LG Household & Health Care’s net profit attributable to controlling shareholders this year by 44% from its previous estimate. It also lowered its forecasts for next year and 2028 by 13% and 7%, respectively. It forecast revenue of 6.3195 trillion won and operating profit of 287.9 billion won this year.
In the U.S., the company is expanding its online and offline distribution network, led by Dr. Groot, while stepping up efforts to grow The Face Shop and Hince in the local market. However, Meritz Securities said the U.S. subsidiary’s share of consolidated revenue was still below 10%, not enough to drive an improvement in overall results.
One-off costs of about 30 billion won related to voluntary retirement are also expected in the fourth quarter. As a result, revenue is forecast to rise 2% year on year, while operating profit is expected to come in at just 6.9 billion won.
Park said, “The key will be stabilizing the China business and expanding the U.S. business’s contribution to earnings,” adding, “Near-term upside for the share price is limited, and it will take time for an improvement in earnings to be confirmed.”

[email protected] Lee Jeong-hwa Reporter