LG Electronics' Q2 Profit Decline: A Test of Resilience in a Tariff-Ridden Landscape

LG Electronics' Q2 2025 operating profit plummeted by 46% to 639.1 billion won ($467 million), underscoring the challenges the company faces amid escalating trade tensions and intensifying competition. While the results were below both analyst expectations and year-ago figures, the decline provides critical insights into LG's vulnerabilities and strategic pivots. This article assesses whether the stumble signals a long-term red flag or a temporary setback for investors.

The Profit Decline: Tariffs as the Primary Culprit

LG's struggles stem largely from U.S. tariff policies, which have burdened its supply chain and pricing strategies. The 46% operating profit drop was exacerbated by a 50% steel tariff expansion in late June 2025, targeting appliances like washing machines and refrigerators. These tariffs, compounded by rising LCD panel costs and marketing expenses in its media division, squeezed margins.

The chart below highlights how LG's stock has underperformed peers amid these pressures, dropping 2.9% post-earnings guidance.

Market Share Dynamics: A Mixed Picture

While LG's consumer electronics divisions (e.g., TVs) face headwinds, its home appliances and B2B segments remain resilient. The appliances unit, though impacted by tariffs, still turned a profit, reflecting its strong brand equity and operational efficiency. Meanwhile, B2B divisions—such as automotive components and HVAC systems—showed growth, bolstered by the June acquisition of Norway's OSO Hotwater. This move strengthens LG's position in the energy-efficient HVAC market, a sector projected to grow at 6.2% CAGR through 2030.

However, competition is fierce. Samsung's aggressive pricing and innovation in home appliances, along with Chinese competitors like Haier, have eroded LG's margins in key markets. Analysts note that LCD panel price spikes—a result of global supply chain bottlenecks—could persist, further challenging LG's TV division.

Strategic Responses: Adaptation or Band-Aid Fixes?

LG's mitigation strategies include relocating production to U.S. facilities to avoid tariffs and exploring price adjustments. While shifting manufacturing could reduce tariff exposure, it risks higher production costs and reduced competitiveness if passed on to consumers. The OSO Hotwater acquisition, meanwhile, positions LG to capitalize on the HVAC market's growth, though returns may take time.

The timeline below illustrates how tariff hikes have progressively tightened over the past five years, amplifying LG's cost pressures.

Investment Implications: Buying Opportunity or Risk?

The verdict hinges on two factors: tariff resolution and B2B execution.

1. Short-Term Risks:
2. Tariffs remain a major overhang. If U.S.-China trade tensions persist, LG's margins could face further erosion.

3. Analysts warn of a potential “pre-tariff stockpile effect,” where demand for appliances may have been artificially inflated in late 2024, depressing restocking in 2025.

4. Long-Term Opportunities:

5. The B2B push into HVAC and automotive components could yield steady returns, diversifying LG's revenue streams.
6. Its webOS platform, despite TV division struggles, retains strategic value in the smart home ecosystem.

Actionable Insight:
Investors should consider a wait-and-see approach. LG's shares are currently priced at 7.2x forward EV/EBITDA, near a 5-year low, suggesting some value. However, the near-term outlook demands patience. A bullish stance may be warranted if LG secures tariff relief or achieves B2B revenue milestones. Conversely, further margin pressure or market share losses in appliances could warrant caution.

Conclusion

LG's Q2 stumble is a symptom of macroeconomic headwinds rather than inherent weakness. While tariffs and competition pose near-term risks, the company's B2B diversification and operational agility hint at resilience. Investors must weigh the potential for recovery against the persistence of trade barriers. For now, LG presents a neutral to cautiously optimistic outlook—ideal for long-term holders but requiring vigilance on policy changes and market share trends.

Data as of June 19, 2025. Past performance does not guarantee future results.