Philips Posts Profit on Job Cuts, Emerging Markets

Royal Philips Electronics NV, the world’s biggest lighting company, posted a first-quarter profit that beat analysts’ estimates, helped by job cuts and growing demand in emerging markets.

The stock surged 3.3 percent in Amsterdam trading, the biggest gain in more than six weeks. First-quarter net income was 200 million euros ($270 million) after a loss of 59 million euros a year earlier, the Amsterdam-based company said today. Analysts had predicted profit of 102.4 million euros, the average of 12 estimates compiled by Bloomberg.

Philips, whose health-care and lighting units compete with General Electric Co. and Siemens AG, unveiled plans in January 2009 to slash 6,000 jobs to bolster profitability. The company repeated today that its fixed-cost base will be more than 700 million euros lower in 2010 than in 2008. First-quarter sales in emerging markets rose 22 percent to 1.7 billion euros.

“The results are simply fantastic,” said Jan Hein de Vroe, an Amsterdam-based analyst at ING Groep NV, in a telephone interview today. “If you take into account a normal season pattern, consensus for the full year will need to come up drastically.” De Vroe recommends that clients buy the shares.

Philips said today it is “increasingly confident” the company will reach adjusted earnings before interest, taxes and amortization as a percentage of sales of 10 percent as early as 2010.

Sales Momentum

First-quarter sales rose to 5.68 billion euros from 5.08 billion euros, beating the 5.33 billion euro-estimate of 18 analysts surveyed by Bloomberg.

Philips shares climbed 81 cents to 24.90 euros today, giving the company a market value of 2.4 billion euros. The stock has risen 20 percent this year.

“I believe that with the results we have delivered in recent quarters, we have started to demonstrate the real potential of our business portfolio,” Chief Executive Officer Gerard Kleisterlee said today.

The company said it expects “that the first-quarter sales momentum will continue into the second quarter.” Market developments in the second half of the year remain uncertain “given the uncertainties in the larger economy worldwide,” Kleisterlee said.

The company had a first-quarter profit before interest, taxes and amortization of 504 million euros, after a loss of 74 million euros a year earlier. Ebita as a percentage of sales was 8.9 percent.

‘Conservative’ Forecast

“The story is good across the board, both in terms of revenue and profitability, in all divisions and all regions,” said Peter Olofsen, an analyst at Kepler Capital Markets, who has a “hold” recommendation on the shares. “Taking into account that the first quarter is normally the weakest, a full- year adjusted Ebita margin of 10 percent seems conservative.”

Revenue at the consumer lifestyle division, which includes the coffee-machine and television business, rose 11 percent to 1.9 billion euros. The division’s head, Andrea Ragnetti, will step down as of Sept. 1, Philips said today. Ragnetti has led the division since its formation in January 2008 and has been a member of the company’s board since April 2006.

“We believe it is clear that his departure should be viewed against the upcoming succession of Mr. Kleisterlee,” SNS Securities analyst Victor Bareno wrote in a note today.

Kleisterlee’s term ends in April 2011. Supervisory Board Chairman Jan-Michiel Hessels told investors in March a successor would be named in the second half of this year.

“The cards seem to have been dealt for Rudy Provoost to become CEO,” when Kleisterlee steps down, De Vroe said. Provoost is currently the head of the lighting unit.

Sales in the lighting unit advanced 20 percent from a year earlier to 1.8 billion euros, driven by the automotive, lamps and Lumileds businesses.

Revenue at the company’s health-care unit, the world’s largest maker of patient-monitoring systems, advanced 4.6 percent to 1.8 billion euros.

To contact the reporter on this story: Maud van Gaal in Amsterdam at

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