April 23, 2012 / 9:13 AM / 8 years ago

Philips surprises with Q1 turnaround

AMSTERDAM (Reuters) - Philips Electronics (PHG.AS) reported better-than-expected quarterly results, buoyed by one-off gains and a stronger performance at its consumer and healthcare businesses, in the first signs of a long-awaited turnaround under new management.

A woman looks at flat screen TV sets in the Philips pavilion before the opening of the IFA consumer electronics fair in Berlin, August 31, 2011. REUTERS/Thomas Peter

But the Dutch group warned that the outlook for the rest of the year was still worrying given the weak economic environment, as fragile consumer spending and government budget cuts in its key markets have a direct impact on its three main businesses in consumer electronics, medical equipment, and lighting systems.

“We remain cautious about the remainder of 2012 given the uncertainties in Europe, particularly in the healthcare and construction markets, and the slowing growth rate in the global economy,” Chief Executive Frans van Houten said in a statement.

While noting the turnaround in the first quarter, van Houten flagged the need for further restructuring, and said Philips must do more to shake up its corporate culture - considered to be overly consensus-driven and cautious - in order to get its new products onto the market quicker.

He reiterated that results in 2012 would be impacted by restructuring charges and one-time investments, and so declined to give a full-year forecast. However, the Dutch group stuck to its guidance for 2013 of 4-6 percent sales growth, 10-12 percent core profit and 12-14 percent return on invested capital.

Shares in Philips, which have underperformed over the past year after a spate of profit warnings and other bad news, were trading up 3.66 percent at 0857 GMT after jumping more than 6 percent earlier on Monday morning to the highest in a month.

Investors have been keen to see signs that management changes and restructuring measures are finally paying off now that Van Houten has been at the helm for a year.

Philips, which made a loss of 160 million euros in the fourth quarter of last year, reported first-quarter net profit jumped 80 percent to 249 million euros as sales climbed 7 percent to 5.608 billion euros.

Operating profit, or earnings before interest, taxes and amortisation (EBITA), was 552 million euros, up 26 percent.

Analysts in a Reuters poll had forecast first-quarter net profit of 186 million euros, and EBITA of 433 million euros, on quarterly sales of 5.436 billion euros.

As Europe’s largest consumer electronics producer, the world’s biggest lighting maker, and a top-three maker of hospital equipment, Philips has blamed its poor performance in the past year on weak economic growth, fragile consumer spending and government budget cuts in several of its key markets.

It has struggled to compete with lower-cost Asian makers of consumer electronics such as televisions, while cuts to government budgets and other austerity measures in the United States and Europe have hit demand for its lighting systems and hospital equipment.


The improvements were most evident in the consumer division - which makes toasters, shavers and docking stations for portable music players - as well as in the healthcare business, whose products range from home oxygen kits to hospital scanners.

Van Houten said that Philips’ healthcare products have increased their market share, showing that “we’re beating the competition,” even in a tough economic environment.

Operating profit for the lighting division, which has been hit by a slowdown in the construction market, picked up from the fourth quarter but was still sharply down from a year ago.

“It’s too early to cry victory but we’re on the right path to improve” at that division, van Houten said.

The first-quarter results were boosted by one-off gains as Philips freed up capital from some of its operations.

These included a 160 million euro gain from the sale of its stake in the Senseo coffee brand to partner Sara Lee Corp. SLE.N, and profits from the sale of its high-tech office campus in the Netherlands.

Philips sold the campus to a consortium of private investors for 425 million euros and will lease back several of the buildings.

It also set up a television joint venture with Hong Kong-based TPV 0903.HK in order to turn around the ailing television business.

The head of the new venture said earlier this month that it will become profitable and eventually be a top three global TV player.

Reporting by Sara Webb; Editing by Matt Driskill and Hans-Juergen Peters

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