Tuesday 17 October 2017

Philips' overhaul on track as it beats earnings targets

Roberta Cowan

Philips Electronics has beaten earnings forecasts for the third consecutive quarter, boosted by cost cuts and higher sales, as a drastic overhaul of the company gathered pace.

The Dutch group known for its hospital scanners, electric toothbrushes, wake-up lights and coffee makers, said third-quarter net profit more than doubled, helped by higher sales across its health, lighting and consumer divisions.

Since taking the helm last year, chief executive Frans van Houten has reset financial targets, cut thousands of jobs and replaced his entire top executive team in an effort to turn around the company, which lost €1.3bn in 2011.

Savings

Philips said that plans to cut €1.1bn in overheads were on track with savings in the third quarter of €306m.

The company first started to show signs of a pick-up in the first half of this year.

Its shares traded up 4.6pc by mid morning, the biggest gainer on the FTSEurofirst 300 index of top European shares.

Mr Van Houten said he was still cautious about the firm's growth prospects.

"The world has become a lot riskier with three headwinds simultaneously, namely Europe, slowing growth in China and some uncertainty in the US," Mr Van Houten said.

The restructuring programme was helping to mitigate some of these pressures, he said.

Kepler analyst Peter Olofsen said Philips was doing "pretty well" given the weak economies where the company operates, particularly that it reported strong healthcare orders and decent growth at its consumer unit.

Philips makes more than half of its sales in mature markets including Europe and North America.

"Overall it's quite a solid set of numbers," he said.

Philips competes with Samsung and LG Electronics among others in consumer electronics, and with General Electric and Siemens in the hospital and lighting markets.

SinceJuly, Mr Van Houten has said that he is considering options for Philips's low-margin audio and video equipment business -- one of the last units to get shaken up.

Transition

He has reiterated that the unit is a "business in transition", but he declined to say whether a deal to split it off, similar to the one he cut with China's TPV Technology for Philips's TVs, is in the works.

Mr Van Houten did not give a full-year forecast.

He said that the company was on track to meet its outlook for 2013 of 4-6pc sales' growth, 10-12pc core profit and 12-14pc return on invested capital.

Sales for the third quarter rose to €6.13bn from €5.39bn a year earlier. Net profit rose to €170m from €76m.

Analysts surveyed by Reuters had forecast net profit at €139m on sales of €5.9bn. Sales in emerging markets rose 10pc. (Reuters)

Irish Independent

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