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Philips Profit Drops as Siemens Says Goals Tough to Reach

Philips Says Weak European Markets Cut Profit
Incandescent light bulbs are arranged for a photograph with a Royal Philips Electronics NV light-emitting diode bulb. Photographer: Scott Eells/Bloomberg

Royal Philips Electronics NV’s earnings fell 45 percent, while Siemens AG cautioned that its targets have become harder to reach, as the two European manufacturers feel the strain of the region’s economic crisis.

Fourth-quarter earnings before interest, taxes and amortization fell to about 500 million euros ($640 million), from 913 million euros a year earlier, Amsterdam-based Philips said today. Siemens’ profit forecast for 2012 has become “very ambitious,” and pressure has increased since November, according to Chief Financial Officer Joe Kaeser.

Philips tumbled the most in almost five months, as the world’s biggest maker of light bulbs fell short of analysts’ profit estimates because of sluggish demand for health-care equipment and lighting in Europe. Siemens predicted stagnant profit for this year in November, as sales growth moderates and a cooling global economy damps demand for industrial gear.

“Although recent warnings from peers suggested a risk for Philips, we thought that health care would deliver,” said Olivier Esnou, an analyst at Exane BNP. “The figures mean that Europe must have been pretty weak across the board and that Philips’ expectations for high delivery levels in December were misplaced.” Esnou is reviewing his outperform rating on Philips and had predicted earnings of 624 million euros.

Philips fell as much as 1.15 euros, or 7.4 percent, to 14.50 euros in Amsterdam, and traded at 15.26 euros as of 1:45 p.m. The stock has lost 12 percent in the last six months. Siemens, based in Munich, was little changed at 75.77 euros.

Van Houten’s Warnings

For Chief Executive Officer Frans van Houten, it’s the second profit warning since taking the helm in April last year. He has already unveiled a plan to save 800 million euros and cut 4,500 jobs to revive earnings and battle deteriorating demand for consumer electronics and lighting products.

“It may seem like van Houten is continuously issuing profit warnings,” said Jos Versteeg, an analyst at Theodoor Gilissen Bankiers. “But he’s not the one to blame.”

Siemens, which competes with Philips in lighting and medical equipment, has suffered increasing headwinds in the fourth quarter, Kaeser told the Wall Street Journal, in comments that were confirmed by the company. The profit forecast for 2012 will require “tough work,” he said.

Philips is scheduled to report full earnings on Jan. 30, while Siemens holds its annual general meeting and fiscal full-year earnings conference in Munich on Jan. 24.


Signs of improvement are showing at Philips’s consumer-lifestyle operation, making goods from shavers to music players, the company said today.

“While we are disappointed with the results, we are confident that by continuing to execute on our change plans, and delivering on our cost reduction plans, we will improve the operations of the company,” van Houten said.

Group sales showed a “mid single-digit” increase from a year-earlier, the company said. Ebita corresponded to a margin of 7 percent to 8 percent on a reported basis. Figures exclude the television business, from which the company has retreated.

Results of the lighting unit were held back by “continued operational issues” in consumer luminaires and as economic weakness impacted price levels in the consumer lighting business. Philips said it expects adjusted Ebita in the fourth quarter to be around 3 percent to 4 percent of sales, with a comparable sales growth of less than 10 percent.

“The lighting numbers are disappointing,” said Marcel Achterberg, an Amsterdam-based analyst at Petercam. “They seemed to have made progress in the restructuring of their supply management, yet this shows they still have a lot to do.”

Added CEO Duties

Van Houten has been in charge of the lighting unit after division chief Rudy Provoost left to become CEO of Rexel SA last year. Philips appointed Pierre Yves Lesaicherre as head of its lumileds subsidiary yesterday.

Philips said health-care sales had “low single-digit” growth in the fourth quarter as sales in Europe fell. The unit had a “strong performance” in the U.S., according to the company. Siemens and Philips are the two biggest European makers of medical equipment, and Siemens has suffered setbacks in areas including diagnostics and advanced cancer therapy.

Van Houten has set a target of increasing Ebita to 10 percent to 12 percent of revenue by 2013, on sales growth of 4 percent to 6 percent. Philips reiterated those targets today.

“Today’s disappointment is just a drop in the bucket of the program they have announced to meet their 2013 targets,” said Petercam’s Achterberg, who has a “hold” recommendation on the stock.

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