LG Electronics Inc. (KRX:066570) earned ₩2,478.4bn of operating income across the whole of FY2025.
In the first six months of 2026 it earned ₩3,252.8bn.
Half a year has produced 31% more operating profit than the previous twelve months. The quarters were ₩1,673.7bn and ₩1,579.1bn, against ₩1,259.1bn and ₩639.4bn in the same periods of 2025.
For a company whose reputation is refrigerators and televisions in a market where Chinese manufacturers have been taking share, that deserves an explanation.
Operating margin in the first half was 6.84%, on revenue of ₩47,553.7bn.
Set that against the annual series. FY2015 through FY2025 produced margins of 2.11%, 2.42%, 4.02%, 4.41%, 3.91%, 6.72%, 5.49%, 4.25%, 4.44%, 3.90% and 2.78%. The best full year in eleven was FY2020, at 6.72%, in the pandemic year when everyone bought appliances.
So the current half is running above the best year this company has had, and it is doing it without a pandemic.
Split the improvement. First-half gross margin was 26.85% against 24.77% a year earlier, up 208 basis points. Selling, general and administrative expense was 20.01% of revenue against 20.41%, an improvement of 40 basis points.
Add the two and you get roughly the 247 basis points of operating margin expansion, with the gross line contributing five-sixths of it.
That matters because the two have different durability. Cutting overhead produces a one-time step. Improving gross margin means the mix of what the company sells has changed, or the prices it gets have, and mix changes persist until the mix changes back.
Revenue grew 9.4% over the half and 14.9% in the second quarter alone, so this is not margin bought by walking away from business.
The company does not break out segments in the summary financials, and the half-year report's segment note is where this gets settled. But the shape of the numbers narrows the candidates.
LG Electronics' television business competes directly with Chinese manufacturers on price and has been a margin drag for years; it is not the source of a 208 basis point gross margin improvement. Its appliance business is large and stable but mature.
The two divisions that could produce this are commercial air conditioning and vehicle components. The first sells chillers and cooling systems, and data centre operators have become significant buyers of exactly that equipment as rack densities rise. The second supplies infotainment, telematics and electric powertrain parts to global automakers on multi-year programmes, and has been building an order book for several years that only recently began converting into deliveries.
Both would show up as gross margin expansion on modest revenue growth, because both sell at higher margins than televisions.
The most useful check on any margin story is whether the cash follows, and here it does.
Cash from operating activities in the first half was ₩3,552.9bn against ₩2,033.8bn a year earlier, up 74.7%, which is almost exactly the 71.3% growth in operating income. Purchases of property, plant and equipment were ₩1,263.5bn against ₩1,233.2bn, essentially flat.
A company converting a 71% increase in operating profit into a 75% increase in operating cash, without spending more on plant to do it, is not managing earnings. Inventories at ₩12,186.5bn against ₩9,760.7bn a year earlier grew faster than revenue, which is the one line worth watching, but on a business this size it is not yet a signal.
Below the operating line the picture is less clean, and anyone extrapolating the half should know it.
In the second quarter, operating income of ₩1,579.1bn plus net finance costs of ₩73.1bn should give pretax income near ₩1,506.0bn. Reported pretax income was ₩1,239.4bn. In the first quarter, operating income of ₩1,673.7bn plus net finance income of ₩31.8bn implies ₩1,705.5bn against reported pretax income of ₩1,400.9bn.
So roughly ₩267bn and ₩305bn respectively are disappearing between the two lines, in each quarter, beyond what interest and finance costs explain.
LG Electronics consolidates LG Display, the panel maker, without owning all of it, and also carries equity-accounted investments. Losses at associates, impairments and other non-operating items all land in that gap. The notes to the half-year report break it out.
The effective tax rate is also high. First-half tax expense of ₩853.9bn on pretax income of ₩2,640.3bn is 32.3%, well above the Korean statutory rate, which is consistent with losses in some entities that generate no tax benefit while profitable entities pay full tax.
The result is net income of ₩1,786.4bn on operating income of ₩3,252.8bn. Just over half the operating profit reaches shareholders, and a further portion of that belongs to LG Display's minority holders.
One more reason not to annualise. LG Electronics has lost money at the operating line in the fourth quarter of 2025, at negative ₩109.0bn, and posted only ₩135.3bn in the fourth quarter of 2024. Net losses in both: negative ₩725.9bn and negative ₩713.8bn.
Two consecutive fourth quarters of heavy losses is a pattern, not an accident, and it reflects year-end restructuring charges, impairments and the seasonal weakness of the television business. Whatever the first half produces, the fourth quarter has recently taken a large bite out of it.
The segment disclosure in the third-quarter report, and specifically the operating profit of the air conditioning and vehicle components divisions. If those two are producing the gross margin improvement, this is a durable re-rating of the business mix. If it is appliances benefiting from a temporary input cost or currency position, it is a good year.
The second marker is the fourth quarter itself, reported in January. A third consecutive Q4 operating loss would mean that whatever the first three quarters earn, roughly a quarter of it gets given back every December, and the right way to value this company is on the annual figure rather than on a very good half.
kstock reads DART every morning and writes up what moved — the contract, the buyback, the number that does not add up. The daily post and a Saturday roundup, by email.