Philips Profit Beats Estimates as CEO Reviews Future of Unit

Royal Philips Electronics NV reported second-quarter profit that exceeded analyst estimates as Chief Executive Officer Frans van Houten considers options for the unit making MP3 players and consumer multimedia devices.

Earnings before interest, taxes, amortization and one-time items were 504 million euros ($609 million) compared with 395 million euros a year earlier, the Amsterdam-based company said in a statement today. The average estimate of three analysts surveyed by Bloomberg was 434 million euros. Philips shares jumped the most in three months in the Dutch capital.

Van Houten in his second year as CEO is tackling struggling consumer-electronic businesses against a backdrop of deteriorating economies. The company is reviewing “various business models” for its Lifestyle Entertainment division to drive more value, and has signed a distribution agreement for the unit in North America with Funai, it said in the statement.

“Importantly, Philips is considering the strategic options for its Lifestyle Entertainment business, which we find a positive development,” Erwin Dut, an analyst at Kempen Research, said in a note. “Clearly Frans van Houten is taking decisive action in addressing underperforming assets early.”

The stock rose as much as 8.5 percent to 17.59 euros, the biggest intraday jump since April 23, and was 7.1 percent up at 17.36 euros as of 12:02 p.m.

The shares dropped 0.4 percent this year through yesterday, valuing the company at 16.9 billion euros. Among its competitors, Siemens AG had declined 6.4 percent, while General Electric Co. (GE) had advanced 11 percent.

Multimedia Business

Sales of 5.89 billion euros beat a 5.58 billion-euro analyst prediction.

Philips already sold the Senseo coffee brand to Sara Lee, divested real estate and appointed new managers for health-care and lighting units as it competes with Siemens and GE.

The audio, video and multimedia business generates about 2 billion euros in sales, according to Dut. Funai will take over the distribution of products in North America but there isn’t an immediate scope to sign similar agreements in other areas, Van Houten said.

“With all the measures, Lifestyle Entertainment continues to be profitable despite the diminished top line and that’s testament to a management team that’s not only cutting costs but bringing out exciting innovations,” the CEO said on a call.

Lighting to Stay

The Dutch electronics maker, which also makes hospital scanners and other medical equipment, plans to keep its lighting division, even as a close competitor opts to divest its bulb unit. Siemens is poised to sell its competing lighting division when markets improve.

Philips’ market share in LED lighting has now overtaken its position in traditional bulbs and there are opportunities as the new technology gets more widely adopted by governments and consumers. Philips won a contract to upgrade street-lighting to LED in the Belgian city of Mechelen.

Any acquisitions will be limited to smaller opportunities as the company’s focus is on operational improvement, the CEO said.

Cumulative savings under the Accelerate reorganization program total 176 million euros, and that figure should climb to 400 million euros by year-end, according to the company. More improvements to profitability will come through in the second half and into next year and the 2013 goals remain unchanged, Van Houten said in a Bloomberg interview.

“Overall, the cost-saving initiatives are on track, resulting in improved operational performance,” Van Houten said.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

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

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