Philips Profit Beats Estimates as Chief Advances With Revamp

Philips 3Q Profit Beats Estimates as Chief Advances With Revamp
Ceramic metal halide lamps are tested during the production process at the Royal Philips Electronics NV lighting unit in Turnhout, Belgium. Photographer: Jock Fistick/Bloomberg

Royal Philips Electronics NV, the world’s largest lighting company, reported third-quarter profit that beat analysts’ estimates as Chief Executive Officer Frans van Houten’s cost-cutting efforts bore fruit.

Earnings before interest, taxes, amortization and one-time items rose 43 percent to 562 million euros ($733 million), the Amsterdam-based company said today. Analysts in a Bloomberg survey predicted 520 million euros. Sales rose 14 percent to 6.13 billion euros, beating a 5.95 billion-euro prediction.

Philips rose as much as 5.1 percent in Amsterdam after Van Houten said his program to boost performance is showing the first signs of success. Van Houten, now in his second year at the helm, is seeking 1.1 billion euros in savings and has increased workforce cuts to 6,700. Philips is becoming more “agile” in getting the latest lighting, medical and electronics innovations to market, the CEO said in an interview.

“They’re performing a bit better than the competition, in healthcare and also in consumer,” said Kepler Capital Markets analyst Peter Olofsen. “Combined with the impact from cost savings you get a strong set of results.”

Philips rose as much as 97 cents to 19.98 euros in Amsterdam and traded at 19.81 euros as of 11.52 a.m. The stock has gained 23 percent this year, valuing the company at 19 billion euros.

Europe Bright Spots

Van Houten’s saving efforts helped mitigate headwinds the company is facing across the globe. Hospitals in the U.S. have become more prudent on spending amid uncertainty on health-care policy in a presidential election year, and the economic situation in Europe “can be described as a roller coaster,” Van Houten said.

Healthcare equipment orders grew by at least 10 percent in Europe in the third quarter. Even amid fears about the debt crisis and lower government spending, Italy provided one of two “big chunk” orders, Van Houten said in the interview. North America showed a decline of about 5 percent. Overall, earnings before interest, taxes and amortization from medical equipment rose to 330 million euros from 261 million euros.

“We are able to find growth even though the market in Europe is quite tough,” Van Houten said.

The transition to light-emitting diode or LEDs from incandescent bulbs helped lighting sales rise 4 percent, though restructuring measures led profit to more than half and Philips will further streamline operations, Van Houten said.

“As we go deeper into the organization, we see more opportunities where there is duplication and indirect costs that are not helping innovation,” the CEO told Bloomberg. “In our new culture, we’re no longer tolerating that.”

Electronics Turnaround

Philips is trying to turn around its consumer products unit, which accounts for about 26 percent of total sales, by putting more focus on peripheral electronics gear such as docking stations for Apple Inc.’s iPhone.

Comparable sales at the consumer lifestyle unit rose 3 percent, driven by at least 10 percent growth in personal care, health and wellness and domestic appliances such as coffee machines. That was partly offset by a similar decline in the lifestyle entertainment segment, which makes DVD players and MP3 sets.

The CEO has said that he is reviewing its strategy and options for the entertainment electronics unit. He declined to elaborate on the process today.

“Lifestyle entertainment is a good business but its portfolio is rapidly changing. Sales of traditional products are going down, and we are working hard to bring out new products,” Van Houten said.

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