Bloomberg News

Philips Profit Beats Estimates as Revamp Boosts Lighting

October 21, 2013

Royal Philips NV (PHIA)’s third-quarter earnings beat analyst estimates as demand for LED lighting bulbs and job cuts boosted profitability.

Earnings before interest, taxes, amortization and one-time items rose 33 percent to 634 million euros ($867 million), the world’s largest lighting manufacturer said in a statement. That beat the 567 million-euro average estimate of eight analysts surveyed by Bloomberg. The stock gained as much as 5.2 percent.

Chief Executive Officer Frans Van Houten is expanding more profitable businesses such as LED lighting, health-care equipment and wellness offerings, while phasing out the audio and video devices that are the heritage of the 122-year-old company. He’s also preparing for a new spate of restructuring as Amsterdam-based Philips reaches the end of a program to cut 6,700 jobs and trim 1.1 billion euros from costs.

“Lighting looks pretty good,” Rabobank analyst Hans Slob, who recommends buying Philips shares, said by phone. “There’s ongoing underlying margin recovery at lighting, plus I think the impact of the Accelerate program. Philips has also been helped by lower commodity input prices.”

Adjusted Ebita at the lighting division jumped 59 percent to 213 million euros, compared with a 7.1 percent increase to 330 million euros at the healthcare unit and 42 percent increase to 121 million euros in the consumer segment.

Ahead of Schedule

Philips’ cost cutting program is ahead of schedule, meaning Philips will probably realize 1 billion euros in savings by the end of this year and will seek 1.5 billion euros in cuts by 2015, Van Houten said in a Bloomberg Television interview today. The program has so far achieved savings of 856 million euros.

“We remain committed to reaching our financial targets this year,”Van Houten said. “However, ongoing headwinds in the global economy are expected to continue to affect sales growth in the coming quarters.”

The stock rose as much as 1.28 euros to 25.70 euros in Amsterdam trading and was up 4.8 percent as of 9:08 a.m., valuing the company at 24 billion euros.

Van Houten, a Philips veteran with a record for turning around underperforming assets, last month pledged to extend his efficiency drive to bolster profitability, saying the company would seek an Ebita margin of 11 percent to 12 percent by 2016. For this year, Philips has predicted a margin of between 10 percent and 12 percent. Van Houten has also started a buyback program totaling 1.5 billion euros.

Declining Sales

Third-quarter sales slipped to 5.62 billion euros from 5.82 billion euros a year earlier. Analysts had estimated revenue of 5.77 billion euros.

Philips must continue to grow organically in the fourth quarter in order to meet its full-year targets, van Houten told analysts on a conference call. The company still expects savings to compensate for the augmented negative impact of currency developments in the current fiscal quarter, he added.

Philips is the largest maker of lighting equipment, and it competes with Siemens AG (SIE) and General Electric Co. in the market for health-care equipment such as medical scanners. Its consumer electronics business has shrunk over the years as customers flocked to competitors such as Sony Corp. or Apple Inc. for mobile and music devices.

Philips this year agreed to transfer its Lifestyle Entertainment business, which includes DVD players, to Funai Electric Co., for a cash consideration of 150 million euros and a brand license fee.

Osram AG, the German lightbulb maker spun off by Siemens in July, gained as much as 3 percent, the most in two months, to 37 euros. The shares were trading 2.8 percent, or 1.01 euros, higher as of 11:25 a.m. in Frankfurt, valuing the company at 3.9 billion euros. Chief Financial Officer Klaus Patzak told Boersen-Zeitung yesterday that its savings program was also ahead of schedule.

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

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


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