Royal Philips Electronics NV dropped the most in more than two months in Amsterdam after the world’s biggest lighting company said it’s “cautious” for the year’s final three months because of the current economic climate.
“We take a cautious view on revenue development in the fourth quarter,” the Amsterdam-based company said in a statement today. Excluding acquisitions, disposals and currency shifts, third-quarter sales advanced 1 percent to 6.2 billion euros ($8.6 billion).
Frans van Houten, who takes over as chief executive officer of the more than 100-year-old company in April, faces the challenge of boosting sales. Philips, whose health-care and lighting units compete with General Electric Co. and Siemens AG, is facing “uncertain economic times on the one hand and consumer sentiment, which is patchy,” Chief Financial Officer Pierre-Jean Sivignon said in a Bloomberg TV interview today.
“The weaker-than-expected Q3 comparable sales growth and cautious outlook for Q4 will likely limit short-term upside to the stock.” Peter Olofsen, an analyst at Kepler Capital Markets in Amsterdam, who rates the stock a “buy.”
Philips fell 4.2 percent to 22.88 euros, the biggest declined since Aug. 11. Before today, the shares had advanced more than 15 percent this year, compared with a 1.8 percent rise of the 25-member Amsterdam Exchanges Index.
Net income rose to 524 million euros in the third quarter from 174 million euros a year earlier, helped by cost cuts and a 154 million-euro gain from the sale of its NXP Semiconductors NV stake. Philips last year set out to slash 6,000 jobs to bolster profitability. The company today said the restructuring will cut its 2010 fixed-cost base by “well over” 700 million euros.
Founded in 1891 as a maker of carbon-filament lamps, Philips was restructured by CEO Gerard Kleisterlee, who is retiring. Kleisterlee has reshaped Philips since 2001 with targeted acquisitions and divestments to focus on industries with higher margins and stable earnings.
Kleisterlee spent more than $10 billion buying health-care assets, including the 3.6 billion-euro takeover of Respironics Inc., a maker of masks and ventilators to treat respiratory disorders at home. It made the company less reliant on the imaging equipment market, which is forecast to grow at a slower pace than the higher-margin home health-care and services markets. The company’s three main businesses now are health- care, lighting and consumer lifestyle.
“They have quite a bit of work to do in terms of revenue growth but costs are under control better than expected,” said Jos Versteeg, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV.
Van Houten, a 20-year Philips-veteran, will have to show that the restructuring efforts will accelerate sales and earnings growth.
Earnings before interest, taxes and amortization almost doubled to 648 million euros. Philips, which makes products ranging from vacuum cleaners to defibrillators and halogen traffic lamps, said Ebita was 10.5 percent of sales.
“We will continue to drive growth initiatives and operational improvements to further exceed the targeted EBITA, adjusted for restructuring and acquisition-related charges, of 10 percent for the full-year 2010,” the company said today.
Philips aims for sales excluding acquisitions, disposals and currency swings to rise 2 percentage points faster than global economic growth in the next five years. The television operations are excluded from this goal because of their volatility, Philips said last month.
Weak Consumer Demand
The company also set a target for earnings per share to grow at twice the rate of sales until 2015 as the company focuses on more profitable lighting and medical products and faster growing markets including India and Brazil.
Revenue at the consumer lifestyle division, including the coffee-machine and television businesses, was hurt by “weak demand” in some markets, Philips said today. Comparable sales fell 5 percent to 2.09 billion euros. The TV unit had a loss before interest, taxes and amortization of 31 million euros.
Philips forecasts the television business will get “close to break-even” this year, CFOSivignon told reporters on a conference call today. The company continues to “believe it should be part of Philips business portfolio,” he said.
Revenue at the health-care unit, the world’s largest maker of patient-monitoring systems, advanced 4 percent on a comparable basis to 2.07 billion euros. The unit’s equipment order intake increased 7 percent, Philips said.
“In the U.S., we saw hospitals focus on lowering their operating costs and managing their return on invested capital,” Sivignon told analysts. The CFO said that there is “some uncertainty” regarding the overhaul of the U.S. health-care system and the taxes on health-care equipment. “As expected, we see the easing of pent-up demand, which saw large multi-year deals in the first half of 2010.”
Philips’s lighting-unit sales advanced 7 percent on a comparable basis to 1.91 billion euros, helped by growth in lighting electronics and the Lumileds business.
The company doesn’t exclude larger acquisitions, Sivignon said, adding that “there’s nothing around the corner.”