Philips Profit Beats on Disposals and Cost-Cutting Program

Royal Philips Electronics NV, the world’s largest lighting company, reported profit that beat analysts’ estimates after cutting costs and selling assets, sending the shares up the most in almost two years.

Earnings before interest, taxes and amortization rose to 552 million euros ($725 million) in the first quarter from 438 million euros, the Amsterdam-based company said today. Analysts surveyed by Bloomberg expected 439 million euros.

Frans van Houten is a year into his role of chief executive officer, with the challenge of struggling consumer electronic businesses such as MP3 music headsets. Philips sold the Senseo coffee brand to Sara Lee, divested real estate and appointed new managers for healthcare and lighting units in the first quarter as it competes with Siemens AG (SIE) and General Electric (GE) Co.

“These results are much better than expected, particularly if you look at healthcare, compared to what General Electric said on Friday,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers, who has a buy rating on Philips. “The slight improvement in lighting is encouraging.”

Philips jumped as much as 9.3 percent to 15.68 euros, the biggest intraday gain since May 10, 2010. The stock traded at 15 euros as of 12:23 p.m. Before today, the shares had lost 12 percent so far this year.

The quarter was a “good step forward” toward the company’s target of increasing Ebita to 10 percent to 12 percent of sales by 2013, Van Houten said. GE reported a 6 percent decline in European healthcare equipment orders, compared with a 1 percent decrease at Philips.

Toward Target

The CEO started a program called “Accelerate” last year after concluding Philips lacked the speed needed in bringing products such as electrical toothbrushes and electric shavers to the market. He is also pushing to change the work culture to become more competitive, immersing about 200 managers in an intensive three-day course. The top 800 managers will have gone through the program by the end of the year, he said.

Van Houten announced a revamp to cut 4,500 jobs to save 800 million euros as demand for healthcare equipment and construction markets deteriorated. Cumulative savings to the end of 2012 are expected to be about 400 million euros.

Sales in the first quarter rose to 5.6 billion euros from 5.25 billion euros, Philips said in the statement. Analysts predicted 5.4 billion euros.

“We remain cautious about the remainder of 2012 given the uncertainties in Europe, particularly in the healthcare and construction markets and the slowing growth rate in the global economy,” Van Houten said.

Leading Light

Lighting chief Eric Rondolat has the job of lifting profit as a percentage of sales at the unit to 8 to 10 percent by 2013, after profitability dwindled to 3 percent in the first quarter.

Philips has been cutting jobs and shifted production of fluorescent lamps from Roosendaal to Poland to boost competitiveness in the past three months.

“We are on the right path to systematically improve lighting,” Van Houten said. The CEO expects margins at the unit to further improve during the rest of the year. In the fourth quarter lighting profitability dropped to 2 percent.

A turnaround at the division would be a crucial catalyst for Philips shares, analysts including Sanford C. Bernstein’s Martin Prozesky said.

To contact the reporter on this story: Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net

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April 23 (Bloomberg) -- Frans van Houten, chief executive officer of Royal Philips Electronics NV, talks about first-quarter profit at the world's biggest lightbulb maker. He speaks from Amsterdam with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)