Philips Profit Hit by Production Delays, Sluggish Demand

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Royal Philips NV, the Dutch company which is splitting off its lighting business to focus on health-care, said quarterly profit was hurt by production delays at a plant in Cleveland, currency swings and sluggish demand.

The Amsterdam-based company now predicts adjusted fourth-quarter earnings before interest, taxes and amortization to be about 735 million euros ($871 million). The estimate by ING was for 774 million euros. The stock dropped as much as 3.5 percent.

The lower-than-estimated profit is a setback for Chief Executive Officer Frans van Houten who’s betting the future of the 123-year-old company on the $125 billion consumer health-care market. The company predicts booming demand for data offerings that help hospitals monitor and analyze patients’ health, reduce unnecessary visits and increase the efficiency of operations and medical procedures.

Delays in the ramp up of production and shipments at a plant in Cleveland, which makes computerised tomography scanners and nuclear medicine products, will hurt full-year earnings by about 225 million euros instead of the 180 million euros previously forecast, Philips said today. The company also faced “ongoing softness in certain markets and stronger than anticipated foreign exchange headwinds in emerging markets.”

“There were early signs that the earnings profile would deteriorate in the fourth quarter, but it’s much more negative than we thought,” Gael de Bray, an analyst at Societe Generale, said by phone.

Stock Decline

The stock declined as much as 82 cents to 22.965 euros in Amsterdam trading and was down 2.8 percent as of 10.03 a.m., valuing the company at 21.6 billion euros.

Philips is scheduled to report fourth-quarter and full-year results on Jan. 27.

Van Houten said the production delays at the Cleveland facility are only a temporary setback.

“Although these delays have impacted our broader health-care performance, we are very pleased to now build further momentum in delivering strong imaging innovations to our customers,” he said in the statement.

The CEO in September unveiled his plan to combine the health-care and consumer-lifestyle divisions into a new entity called HealthTech. The company also plans to carve out the slower-growing lighting unit.

The company said today that it is progressing in “attracting external investors” for the lighting business.

The split from the lighting unit echoes a move by German rival Siemens AG, which spun off its entire lighting division last year as the industry faces competition and shifts towards LEDs, that are smaller and more energy-efficient than traditional bulbs.