Electrolux undershot forecasts with flat quarterly earnings on Monday as new product launches cost more than expected, and said its outlook for higher full-year earnings had grown more uncertain.

Shares in the world's second biggest home appliances maker fell on the news, underperforming a bearish broader market with a 4.5 percent decline to 133.75 crowns by 0932 GMT.

Earnings before interest and tax (EBIT) rose to 1.15 billion Swedish crowns ($179 million), excluding non-recurring items, versus 1.14 billion a year ago and 11 analysts' average forecast of 1.23 billion.

The firm, whose brands include AEG, Zanussi and Frigidaire as well as its own name, said it still saw somewhat higher operating earnings for the full year, excluding one-off items, but added the forecast had grown more uncertain.

Electrolux pointed to the risk of a further decline in the U.S. appliance market, continued raw material cost increases and cost pressures in Europe. Electrolux spokesman Anders Edholm said the firm now saw full-year earnings coming in rather 1 percent higher than 10 percent higher.

I am flagging for a full-year forecast ... where we will be at the lower end of the range, Chief Executive Hans Straberg told Reuters, adding results in the final months of this year would be compared with a very strong year-ago quarter.

He said it would be very tough to outperform last year's fourth-quarter results when Electrolux's operating margin in Europe was nearly 10 percent. In the third quarter of 2007, the margin for its European consumer durables unit was 4.4 percent.

It's an okay report but it doesn't go all the way in terms of looking forward, SEB analyst Leif Pettersson said.

We're trading on the '08 numbers and it seems like the risk has increased quite substantially.

Ahead of the report, analysts had voiced concerns that Electrolux, surpassed by Whirlpool Corp last year as the world's biggest white goods maker, would see its U.S. business suffer from the fallout of a recent credit crunch and an extended slowdown in the U.S. housing market.

The firm said market conditions in the United States had deteriorated recently, but its consumer durables business still posted a rise in earnings to 386 million crowns from 333 million last year, despite a 7 percent year-on-year decline in sales.

EUROPE WORRIES

In Europe, however, operating income dipped to 514 million crowns from 672 million a year-ago, hit by unexpectedly high costs for launching new products.

We are working intensively to solve the problems, but it will take time before we achieve the expected improvement, Straberg said in a statement.

The launch of new products during the quarter was Electrolux's biggest ever product renewal and marketing drive. That helped maintain average selling prices, but it meant the firm had to focus more on time than costs, Straberg said.

It is bad for confidence (in management) that Europe is weak since their entire case revolves around them improving margins on the back of new exciting products there, said an analyst who asked not to be identified.

While sales in the region rose to 11.62 billion crowns from 11.23 billion a year earlier, the firm said demand had softened in key markets such as Germany.

In Europe, a lot is happening right now, Danske Equities analyst Michael Andersson said. The market is folding, deliveries are delayed while raw material prices are rising and the question is, How long this will go on? (Additional reporting by Johannes Hellstrom, Jerker Hellstrom and Simon Johnson)

Citigroup