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Philips Fourth-Quarter Profit Beats Forecasts

Reuters
Monday, 21 Jan 2008 | 5:09 AM ET

Philips Electronics reported fourth-quarter core earnings above average analysts' forecasts on Monday, but said its key medical division still struggled with a weaker U.S. market for imaging systems.

Noting worries about the broader economic climate, the shavers-to-lightbulbs group said it was confident it could meet its 2008-2010 targets.

"We are pleased with the figures... we beat market expectations, both on sales and on EBITA," Chief Executive Gerard Kleisterlee told "Squawk Box Europe."

"I think that's a big compliment for a team that has performed well in adverse market circumstances," Kleisterlee added.

Philips Quarterly Profit Beats Forecasts
Philips Electronics reported a better-than-expected fourth-quarter profit Monday. Gerard Kleisterlee, CEO of Philips, explains why he is pleased with his company's earnings.

Amsterdam-based Philips said earnings before interest, tax and amortization (EBITA) rose 17 percent to 865 million euros ($1.3 billion), above an average forecast of 798 million euros in a Reuters poll of 13 analysts.

Around one third of Philips sales are now coming from emerging markets, and this means the company has an "almost a built-in cushion against the effects of deterioration of established markets," Kleisterlee said, adding India and China had fourth-quarter sales growth of above 20 percent.

SNS Securities analyst Victor Bareno said excluding an unexpected increase in income from intellectual property, however, core earnings were broadly in line with expectations.

Group sales grew 4 percent to 8.4 billion euros, near the high end of analyst forecasts, driven by Philips' lighting and domestic appliances divisions.

Philips said it would propose a dividend of 0.70 euro per share, worth about 715 million euros and up from 0.60 euro per share in the previous year.

Medical Order Intake Picks Up

The closely watched medical division -- one of the world's top three hospital equipment makers -- met expectations with EBITA of 354 million euros. Analysts had forecast 353 million euros.

Competitor GE Healthcare reported a 4 percent drop in fourth-quarter profit for its health care division on Friday.

Kleisterlee told CNBC Europe that he expected the U.S. imaging market to improve towards the end of the year and that Philips was well positioned to weather the current market turmoil.

"We have a set of businesses that have a proven track record of being quite resilient in this kind of circumstances," he said.

In 2001 and 2003, during the downturn after the dot-com crisis, the company's domestic appliances, lighting and medical businesses performed well, Kleisterlee said.

Order intake of the medical division grew 10 percent on a currency-comparable basis, of which 4 percentage points were due to four large long-term contracts, Philips said.

"Order intake picked up nicely, that should be positive for some improvement in 2008 in this division," Bareno said.

Philips said in October that its medical division -- which has been hit by a shrinking market for medical imaging equipment in the United States due to U.S. government healthcare spending cuts -- would miss its full-year targets.

Philips' 2008-2010 targets call for average comparable sales growth of at least 6 percent annually and EBITA margins of its current businesses of above 10 percent.

In its consumer electronics division -- which in 2007 contributed 38 percent of group sales but only 17 percent of EBITA -- Philips said it would take steps to improve what it called unsatisfactory margins in its TV business.

Kleisterlee said the division would follow the example of the domestic appliances unit, which stopped offering some products in markets where they could not be sold profitably.

He ruled out any acquisitions in the near future.

"For the moment, our priority is on integrating what we have," Kleisterlee said.

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