Bloomberg News

Philips Misses Estimates on Lighting, Health Revenue Woes

April 22, 2013

Royal Philips Electronics NV (PHIA) reported first-quarter profit that missed analysts’ estimates on declining sales at its lighting and health-care businesses.

Earnings before interest, taxes, amortization and one-time items were 421 million euros ($550 million), the world’s largest lighting manufacturer said today. The average estimate of 14 analysts in a Bloomberg survey was for 441 million euros. The stock dropped as much as 3.1 percent in Amsterdam trading.

“The world is an uncertain place right now,” Chief Executive Officer Frans van Houten said in an interview with Bloomberg TV, adding that U.S. hospitals are holding back on spending amid the country’s health-care reform. In the lighting business, sales were hit as construction companies cut orders amid the economic slowdown, he said.

The results are a setback forvan Houten as he’s trying to push the Amsterdam-based manufacturer into higher-margin areas such as lighting products that save energy, health-care equipment and wellness offerings to move away from a consumer- electronics past. Philips’ consumer business has shrunk over the years as customers flocked to competitors such as Sony Corp. or Apple Inc. for mobile communications and music devices.

First-quarter sales dropped 0.9 percent to 5.26 billion euros, missing the 5.48 billion-euro analyst estimate. Health- care sales declined 3.7 percent while lighting revenue dropped 2 percent. The two units generate about 80 percent of Philips’ total sales. Sales at the consumer lifestyle unit rose 9 percent.

Cutting More Costs

“The decline of the health-care order intake by 5 percent was very disappointing in the quarter,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers. He has a “buy” rating on Philips shares.

The stock declined as much as 66.5 cents to 21 euros and was down 2.7 percent as of 9:05 a.m. in Amsterdam, valuing the company at 20.3 billion euros. Before today, Philips had gained 8.9 percent, while General Electric increased 3.6 percent in New York and Siemens dropped 7.4 percent in Frankfurt.

To counter weak demand, Van Houten is trying to reduce costs. He said last month he sees opportunities to cut an additional 1 billion euros in costs between 2014 and 2016 by simplifying processes. This comes on top of an existing plan to save 1.1 billion euros and cut 6,700 jobs by 2014, including management layers to accelerate decision making.

Wellbeing Products

Van Houten has transferred the loss-making TV-unit into a joint venture with TPV Technology Ltd. (903) and sold the underperforming audio and video unit to Funai Electric Co. Philips’ remaining consumer division focussed on health-and wellbeing products such as beard stylers and grooming kits, electronic toothbrushes, coffee machines and kitchen appliances.

Philips, which competes with Siemens AG (SIE) and General Electric Co. (GE:US) in health-care equipment and lighting, has set a target for earnings before interest, taxes and amortization of 10 to 12 percent of sales by 2013, on revenue growth of 4 percent to 6 percent on compound annual growth rate. Van Houten has said he’ll update investors on these targets in September.

Van Houten, who took over in April 2011, today reiterated that business in the first half will be ‘slow’’ because of “adverse market trends” in Europe and the U.S. The company reiterated its full-year targets.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Simon Thiel at sthiel1@bloomberg.net


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