Royal Philips Electronics NV, the world’s biggest lighting company, posted a better-than-estimated increase in third-quarter profit, while saying it’s “cautious” on sales for the final three months of the year.
Net income rose to 524 million euros ($728 million) from 174 million euros a year earlier, helped by cost cuts and a 154 million-euro gain from the sale of its stake in NXP Semiconductors NV, the Amsterdam-based company said in a statement today. Analysts had predicted profit of 358 million euros, the mean of 18 estimates compiled by Bloomberg.
“Investors may get a scare from that outlook although the numbers look good,” said Jos Versteeg, an Amsterdam-based analyst at Theodoor Gilissen Bankiers NV. “They have quite a bit work to do in terms of revenue growth but costs are under control better than expected.”
Frans van Houten, who takes over as chief executive officer of the more than 100-year-old company in April, faces the challenge of boosting sales. Philips, whose health-care and lighting units compete with General Electric Co. and Siemens AG, last year set out to slash 6,000 jobs to bolster profitability.
The company in September set a target for revenue excluding acquisitions, disposals and currency shifts to rise 2 percentage points faster than global economic growth in the next five years. In the third quarter, sales on that basis advanced 1 percent in the latest quarter to 6.2 billion euros
“Given the uncertain economic climate and fragile consumer confidence in some of our markets, we take a cautious view on revenue development in the fourth quarter,” Philips said today.
Restructuring
Philips has advanced more than 15 percent to 23.88 euros in Amsterdam trading this year, compared with a 1.8 percent rise of the 25-member Amsterdam Exchanges Index. That values the company at 23.5 billion euros.
Caution on the outlook for the fourth quarter stems from “uncertain economic times on the one hand and consumer sentiment, which is patchy,” Pierre-Jean Sivignon, Philips’ chief financial officer, said in a Bloomberg TV interview.
Founded in 1891 as a maker of carbon-filament lamps, Philips was restructured by CEO Gerard Kleisterlee, who is retiring. Kleisterlee has reshaped Philips since 2001 with targeted acquisitions and divestments to focus on industries with higher margins and stable earnings.
Kleisterlee spent more than $10 billion buying health-care assets, including the 3.6 billion-euro takeover of Respironics Inc., a maker of masks and ventilators to treat respiratory disorders at home.
It made the company less reliant on the imaging equipment market, which is forecast to grow at a slower pace than the higher-margin home health-care and services markets. The company’s three main businesses now are health- care, lighting and consumer lifestyle.
Earnings Targets
Van Houten, a 20-year Philips-veteran, will have to show that the restructuring efforts will accelerate earnings growth.
Earnings before interest, taxes and amortization almost doubled to 648 million euros. Philips, which makes products ranging from vacuum cleaners to defibrillators and halogen traffic lamps, said Ebita was 10.5 percent of sales.
“We will continue to drive growth initiatives and operational improvements to further exceed the targeted EBITA, adjusted for restructuring and acquisition-related charges, of 10 percent for the full-year 2010,” the company said today.
Philips aims for Ebita to total 10 percent to 13 percent of sales from 2011 through 2015, compared with margins of 10 percent to 11 percent in the five years through 2010, it said last month.
The company also set a target for earnings per share to grow at twice the rate of sales until 2015 as the company focuses on more profitable lighting and medical products and faster growing markets including India and Brazil.
Bloomberg