2nd UPDATE: Philips Posts 3Q Net Profit, No Recovery Yet
October 12 2009 - 7:39AM
Dow Jones News
Royal Philips Electronics NV (PHIA.AE) Monday posted a
third-quarter net profit, surprising analysts who had forecast a
loss and giving the shares a boost, but the electronics maker said
its outlook remained cautious.
Net profit for the three months ended Sept. 30 was EUR174
million, up from a net profit of EUR57 million in the same period
last year. Analysts had expected a net loss of EUR45 million.
The Amsterdam-based company posted the unexpected net profit as
lower sales were partly offset by cost savings, lower-than-guided
restructuring charges and an EUR87 million gain due to the release
of a provision for retiree medical benefits.
However, the company is still confronted with a weak U.S.
hospital market, due to uncertainty around U.S. health-care reform,
declining consumer spending and weak construction and automotive
markets, which has put pressure on lighting sales.
"While encouraged by the positive developments in sales and
profitability during the third quarter, we remain cautious about
the short-term outlook in the absence of structural recovery in the
majority of our end markets," the company said.
"Philips' 3Q results look excellent," said Petercam analyst Eric
de Graaf, who has an add rating. "Cost savings are becoming
visible."
Philips has been accelerating restructuring measures since last
year, as the economic crisis got a grip on the maker of products
such as televisions, shavers, lighting and health-care
equipment.
To mitigate the effect of the global downturn, Philips is still
targeting EUR600 million in annual cost savings, Chief Financial
Officer Pierre-Jean Sivignon told a conference call. "We stick to
our previous cost-savings target," Sivignon said.
The program benefited Philips' fixed-cost base by EUR118 million
in the third quarter, which is expected to increase to EUR159
million in the fourth quarter.
Apart from cost savings from the restructuring program, Philips
has also cut discretionary costs, like spending on consultants and
travel. The CFO declined to give details on these savings, but said
that "these costs will come back up when sales go back up."
The company booked a lower-than-guided EUR125 million in
restructuring charges in the third quarter, a EUR51 million
increase from a year earlier, but said it expects another EUR200
million in restructuring- and acquisition-related costs in the
fourth quarter.
"We believe that Philips will continue to take as much costs out
as needed," De Graaf said.
Despite better cost management, margins were lower on an annual
basis for all businesses except consumer lifestyle, where earnings
before interest and taxes rose to EUR126 million from EUR59 million
a year earlier as the restructuring of its television business led
to a EUR50 million improvement in the segment.
Ebit margins before amortization at Consumer Lifestyle were up
to 6.2% from 2.4% a year earlier.
However, margins at Philips' lighting division more than halved
due to continuing weakness in many end-markets and restructuring
charges.
At the Healthcare unit, margins were down to 9.6% of sales, from
10.4% a year earlier, supported by cost savings, while declines in
North American sales were partly offset by double-digit growth in
emerging markets.
Emerging markets now make up 31% of group sales, with Healthcare
generating 19% of its sales in countries like Brazil, India and
China.
Philips recently set a goal to generate half of its revenue from
emerging countries.
Around 1203 GMT, Philips shares were up 6.7% at EUR18.18, having
gained 40% in the past three months, outperforming the AEX, which
gained 32% in the same period, as cyclicals outperformed defensive
stocks and many analysts upgraded Philips' rating and target
price.
-By Robin van Daalen, Dow Jones Newswires; +31 20 571 52 01;
robin.vandaalen@dowjones.com