Philips Sees Lumileds Sale in 2016 as Health Boosts Profit

  • CEO van Houten says company still planning to sell division
  • Third-quarter profit helped by health-care businesses

We've Transformed Philips and Lumileds Deal Nears: CEO

Royal Philips NV is planning to sell its Lumileds lighting-components division before the end of the year to better focus on health care, which helped drive a 14 percent increase in third-quarter profit and an outlook for improved earnings.

“Patience is a virtue and I’ve always said by the second half of this year we’d complete a transaction for Lumileds,” Chief Executive Officer Frans van Houten said in an interview on Monday on Bloomberg TV. “We’re still planning to do that.”

Adjusted earnings before interest, taxes and amortization were 649 million euros ($706 million) in the quarter, the Amsterdam-based company said in a statement. That compared with 570 million euros in the same quarter last year. Sales rose 2 percent on a comparable basis to 5.9 billion euros.

Under Van Houten, Philips is sharpening its focus on growing in the health-care market. The company sold shares of its lighting division, now called Philips Lighting NV, in an initial public offering in May and had said it’s planning to divest the Lumileds components business in the second half of the year. Philips was in talks to sell Lumileds to Apollo Global Management LLC, people with knowledge of the matter said earlier this month, after a deal to sell the business to a Chinese-led group of buyers was scrapped earlier in 2016 due to opposition from a U.S. national security panel.

Relief

The shares gained 4.4 percent to 27.32 euros as in Amsterdam on Monday, the biggest rise since January and the highest closing price since April 2015, valuing the company at 25.9 billion euros.

To read more about the plans to sell the Lumileds division, please click here.

Investors were probably relieved that Philips maintained its 11 percent adjusted profit margin forecast for 2016 and signaled further earnings improvement in the fourth quarter, ABN Amro Bank analyst Marc Hesselink said by phone.

“People expected that there could be some lowering of that guidance, and that didn’t happen, which is the positive surprise,” Hesselink said. “It implies that they’re still relatively positive on the fourth quarter, and the fourth quarter is the key quarter for Philips.”

The company “continues to actively engage in discussions for the sale of the combined Lumileds and automotive businesses” and, in a further move away from its historic business, Philips said it’s also planning to sell the remaining 71 percent stake in the lighting division “over the next several years.”

The company is in no rush to sell down the Lighting stake and would choose the timing of disposals carefully, Van Houten told reporters on a conference call. He declined to specify who the company is in talks with for the sale of Lumileds nor the price range.

“Our outlook for 2016 remains unchanged, as we expect further earnings improvement in the fourth quarter of the year,” Van Houten said. “We remain concerned about risk due to volatility in the markets in which we operate.”

Comparable sales grew 7 percent in the personal health business, which ranges from beard trimmers aimed at millennials to power toothbrushes and home ventilators, while diagnosis and treatment sales increased 6 percent. Although comparable revenue in the connected care and health informatics business was flat, the underperformance was largely related to the timing of sales and installations, and the growth trajectory for the unit remains intact, Van Houten told analysts on a conference call. The business includes patient monitors, hospital ventilators and remote cardiac monitoring.

Lighting sales fell 3 percent on a comparable basis, while intake of orders rose 8 percent, Philips said.

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