Royal Philips Electronics NV (PHIA), the world’s biggest lightbulb maker, said it’s “cautious” about prospects for 2012 after writedowns, sluggish sales and costs to exit a television business led to its biggest loss in a decade.
Expenses tied to an overhaul and investment in factories to raise efficiency will weigh on earnings, the Amsterdam-based company said today as it reported fourth-quarter and full-year net losses. Philips is “fully committed” to reaching 2013 financial targets, it said.
The Dutch company joins competitors including Siemens AG (SIE) in struggling to maintain profit during an economic slowdown in Europe. Chief Executive Officer Frans van Houten said this month that earnings dropped as Philips battled deteriorating demand for health-care equipment and lighting products in the region. Munich-based Siemens, a rival in those markets, said achieving its goals has become more difficult as quarterly profit missed estimates.
Philips “did not do that bad when you look at sales growth, but when it comes to margins they will have to do a lot of work to achieve targets,” said Jos Versteeg, an Amsterdam- based analyst at Theodoor Gilissen Bankiers.
Philips fell as much as 3.3 percent to 15.06 euros and was down 2.8 percent at 1:30 p.m. in Amsterdam. The stock has dropped about 33 percent since Van Houten took the helm in April, reducing the market value to 15.3 billion euros ($20.1 billion). Versteeg has a “buy” recommendation on Philips.
The full-year net loss, excluding minority interests, was 1.3 billion euros compared with profit of 1.45 billion euros in 2010. The loss was the biggest since 2002. Sales rose 1.3 percent to 22.6 billion euros. On a comparable basis, revenue increased 4 percent, driven by gains of 6 percent at the lighting unit and 5 percent in health care.
“We are cautious about 2012 given the uncertainty in the global economy, and Europe in particular,” Van Houten said in a statement today. “Europe is not a great place for growth right now,” though the company is growing in Asia and the U.S., he told reporters.
The company plans to extend a 2 billion-euro buyback plan by one year to the second quarter of 2013, citing volatility of the markets.
Philips outlined a first round of head-count reductions in the Netherlands at its lighting unit on Dec. 15 as part of a bigger overhaul involving 4,500 jobs worldwide in an 800 million-euro savings drive.
Van Houten introduced a companywide program named “Accelerate” last year after concluding that Philips lacked the speed needed to bring products to market. The manufacturer now sees initial signs of improvement in oral care, personal care and domestic appliances, Van Houten said in an interview on Bloomberg Television.
On top of the plans announced last year, the company recently started an austerity program to reduce travel costs and discretionary spending, and bring down inventories, Chief Financial Officer Ron Wirahadiraksa said. “We have to do more with less,” he said.
Van Houten has set a target of increasing earnings before interest, taxes and amortization to 10 percent to 12 percent of revenue by 2013, on sales growth of 4 percent to 6 percent. Ebita fell 34 percent to 1.68 billion euros in 2011, and the margin narrowed to 7.4 percent of sales from 11.5 percent a year earlier.
Margins of just 2 percent in lightbulbs indicate the extent of the challenge facing Van Houten, analyst Versteeg said.
“There is a lot of action in place to improve the performance at lighting, as the company faces aggressive pricing behavior” in packaged light-emitting diodes, Van Houten said on a conference call. The CEO expects an improvement in the lighting unit’s performance in the second half of this year.
The fourth-quarter net loss attributable to shareholders was 162 million euros compared with profit of 463 million euros a year earlier. Analysts had expected a net loss of 25.75 million euros, according to the average of eight estimates compiled by Bloomberg.
The loss included a charge of 272 million euros in the fourth quarter related to the agreement with Hong Kong-based TPV Technology Ltd (903) for Philips’ unprofitable TV unit.
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