Breaking News

Tweet TWEET

Philips Net Beats Estimates; `Cautious' on Fourth-Quarter Sales

Royal Philips Electronics NV, the world’s biggest lighting company, posted a better-than-estimated increase in third-quarter profit, while saying it’s “cautious” on sales for the final three months of the year.

Net income rose to 524 million euros ($728 million) 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, the Amsterdam-based company said in a statement today. Analysts had predicted profit of 358 million euros. Excluding acquisitions, disposals and currency shifts, sales advanced 1 percent to 6.2 billion euros.

“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.”

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, last year set out to slash 6,000 jobs to bolster profitability.

Philips fell as much as 4.9 percent in Amsterdam to 22.70 euros, valuing the company at about 22.4 billion euros. 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.

“Given the uncertain economic climate and fragile consumer confidence in some of our markets, we take a cautious view on revenue development in the fourth quarter,” Philips said today.

Cautious Outlook

Caution on the outlook for the fourth quarter stems from “uncertain economic times on the one hand and consumer sentiment, which is patchy,” Pierre-Jean Sivignon, Philips’ chief financial officer, said in a Bloomberg TV interview.

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.

Earnings Targets

Van Houten, a 20-year Philips-veteran, will have to show that the restructuring efforts will accelerate 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 Ebita to total 10 percent to 13 percent of sales from 2011 through 2015, compared with margins of 10 percent to 11 percent in the five years through 2010, it said last month.

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.

To contact the reporter on this story: Maud van Gaal in Amsterdam at mvangaal@bloomberg.net; Martijn van der Starre in Amsterdam at vanderstarre@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net; Vidya Root at vroot@bloomberg.net

Tap for Slideshow
Photographer: Jock Fistick/Bloomberg

An employee makes the final inspection on ceramic metal halide lamps at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium.

Close
Photographer: Jock Fistick/Bloomberg

An employee makes the final inspection on ceramic metal halide lamps at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium. Close

An employee makes the final inspection on ceramic metal halide lamps at the Royal Philips Electronics NV lighting... Read More

Photographer: Jock Fistick/Bloomberg

Ceramic metal halide lamps are tested during the production process at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium. Close

Ceramic metal halide lamps are tested during the production process at the Royal Philips Electronics NV lighting unit... Read More

Photographer: Jock Fistick/Bloomberg

A statue of Icarus sits on display at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium. Close

A statue of Icarus sits on display at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium.

Photographer: Jock Fistick/Bloomberg

Gyula Ando, an engineer, works on the body coil of an MRI scanner at the Philips Healthcare production facility in Best, Netherlands. Close

Gyula Ando, an engineer, works on the body coil of an MRI scanner at the Philips Healthcare production facility in Best, Netherlands.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.