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Philips Profit Jumps as Health-Care Orders Recover in the U.S.

Philips Profit Jumps as Savings Program Offsets Slow Economy
A Royal Philips Electronics NV logo is seen at the company's factory in Aachen, Germany. Photographer: Ralph Orlowski/Bloomberg

Royal Philips NV’s second-quarter profit jumped 30 percent, driven by growth at the consumer and health-care units, where orders accelerated in North America and emerging economies.

Earnings before interest, taxes, amortization and one-time items totaled 530 million euros ($697 million) compared with 408 million euros a year earlier, the Amsterdam-based company said in a statement today. Profit matched the average estimate of 11 analysts surveyed by Bloomberg. Philips shares added as much as 4.1 percent.

Profit improved for a fifth straight quarter as Chief Executive Officer Frans Van Houten’s move into higher margin products within lighting and healthcare added to improvements at a legacy consumer-electronic businesses. The 122-year-old company is also midway through a program to cut 6,700 jobs and trim 1.1 billion euros from costs by 2014.

Planned cuts are “well on track and could probably outperform on the savings program,” said Hans Slob, an Utrecht, Netherlands-based Rabobank analyst who recommends buying Philips shares. “We finally see some improving momentum in North America for the order intake at healthcare.”

Sales increased to 5.65 billion euros from 5.57 billion euros, beating a 5.61 billion-euro analyst estimate. While weaker orders in the U.S. and Europe in previous quarters stifled growth, the Accelerate efficiency program was driving performance, Van Houten said. The Ebita margin at Philips widened to 10.7 percent from 6.1 percent.

Emerging Markets

Adjusted Ebita at the consumer lifestyle division jumped to 84 million euros from 48 million euros, while climbing 7 percent to 338 million euros at the health-care unit and increasing 43 percent to 166 million euros at the lighting division.

Advances in emerging markets, including China, Russia and Latin America, bolstered business at healthcare, where 19 percent growth was “very positive,” said Rabobank’s Slob, adding that Philips also broke a trend of declining orders in North America. Order intake at the division grew 7 percent at constant currencies.

“The 7 percent order growth is related to a slate of new products that we have introduced,” Van Houten said on a call with journalists, citing new ultra-sound, computer tomography and magnetic resonancing imaging devices. “The economy is still tough, but customers are awarding us more orders.”

General Electric Co., a competitor in health-care equipment, said last week its European orders in that area grew for the first time in three years in the second quarter. Munich-based Siemens AG will report its earnings for the same calendar period on Aug. 1.

Shares Advance

Philips added as much as 3.8 percent to 24.31 euros, its highest since January 2011, and was trading 2.6 percent higher as of 9:26 a.m. in the Dutch capital, valuing the company at 23.4 billion euros.

Van Houten has transferred the loss-making TV-unit into a joint venture with TPV Technology Ltd. and sold the underperforming audio and video unit to Funai Electric Co. Philips’ remaining consumer division focused on health and wellbeing products such as beard stylers and grooming kits, electronic toothbrushes, coffee machines and kitchen appliances.

Hospital Scanners

The Dutch electronics maker, which also makes hospital scanners and other medical equipment, plans to keep its lighting division, even after Munich-based competitor Siemens AG divested its bulb unit July 8.

To counter weak demand, Van Houten is trying to reduce costs. He said in March he sees opportunities to cut an additional 1 billion euros in costs between 2014 and 2016 by simplifying processes. This comes on top of the existing plan.

“Looking ahead to the second half of 2013, we are concerned about economic uncertainties around the world; however, we remain committed to reach our financial targets this year,” the CEO said.

Philips has set a target for earnings before interest, taxes and amortization of 10 to 12 percent of sales by 2013, on revenue growth of 4 percent to 6 percent on compound annual growth rate.

The company completed a 2 billion-euro share buyback program started in July 2011, it said today. Van Houten will update investors on future allocation of cash in September, he told journalists in a conference call today.

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