Philips Warns on Profits Due to Weak Europe

Philips Electronics warned of soft fourth quarter profits due to weak European consumer markets that is leading to charges for inventory it cannot shift.

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Europe's biggest consumer electronics maker said it will report a fall in underlying fourth quarter earnings to about 500 million euros from 910 million a year earlier.

The earnings report, due at the end of January, would also show slowing sales growth across its biggest divisions and unspecified charges for products that are still sitting in its warehouses.

"Our expected fourth-quarter financial results have been affected by the weakness in Europe, which has impacted our healthcare business, as well as pricing in our consumer lighting business," Chief Executive Frans van Houten said on Tuesday.

Government austerity programs in Europe are squeezing hospital budgets and some have put orders for the latest equipment on hold.

Petercam analyst Marcel Achterberg said the excess inventory problem the lighting business is facing indicates that consumer spending is indeed slowing down in Europe.

The shares

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[PHG  Loading...      ()   ] were hit hard by the profit warning, down 4.3 percent, while the main AEX index

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[  Loading...      ()   ] was up 1.4 percent.

The latest warning follows a prediction in June of sharply lower profits at the lighting division, its biggest alongside healthcare equipment, due to weak consumer demand in Europe and problems caused by crisis-hit construction markets. That was just a few months after Van Houten took the helm.

Philips said on Tuesday that overall sales growth in the fourth quarter will probably come in at less than 5 percent and the underlying profit margin is now expected to be 8-9 percent, below an estimate from SNS Securities analysts of 11 percent and down from the 11.4 percent the firm reported a year earlier.

"Results in Healthcare and Lighting are disappointing, especially as it is explained by difficult markets in Europe which are not likely to improve in the near term," said SNS analyst Victor Bareno.

Despite a strong performance in the U.S., the healthcare division will report fourth-quarter sales growth in the low single digits, primarily due to weak sales in Europe and delivery delays.

Earlier on Tuesday, German engineering group Siemens

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[SI  Loading...      ()   ], a competitor of Philips in the healthcare market, said the economic environment is worsening for its business, with clients being forced to cut spending.

Van Houten started as chief executive on April 1, after an extensive period shadowing the former boss Gerard Kleisterlee. Two weeks into the job, he announced the sale of Philips loss-making TV business and a review of profitability in the group's 400 business areas.

While a buyer for trouble TV business has been found, the deal hasn't been sealed and investors are anxious about whether it will in fact close in early 2012.

Van Houten has issued two profit warnings, started a massive restructuring and taken direct charge of the lighting division after the departure of its former head in September.

Van Houten said the firm's consumer products division, which makes gadgets like electric toothbrushes and coffee makers was "beginning to show early signs of improvement," after a massive overhaul last year, which led to hundreds of job cuts and the domestic appliance team moving to China to be closer to higher growth emerging markets .

Philips said on Tuesday that with continued cost cutting and restructuring it still expects to meet its 2013 mid-term financial targets of 4 to 6 percent sales growth, 10-12 percent underlying earnings growth and a 12 to 14 percent return on capital.

The Dutch group competes with Samsung and LG Electronics among others in consumer electronics, and with General Electric

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[GE  Loading...      ()   ] and Siemens in the hospital and lighting markets.

Philips is set to report fourth-quarter results on Jan 30.