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Philips Quarterly Profit Rises, But Medical Misses Forecasts

Dutch Philips Electronics posted a quarterly core profit above analysts' average expectations on Monday, but its key medical systems unit showed a surprise decline in earnings.

Philips said third-quarter earnings before interest, tax and amortization (EBITA) rose to 438 million euros ($622.6 million) from 71 million the year before, when earnings were hit by a 265 million euro charge for asbestos-related liabilities.

The result compared with the average forecast of 423 million euros in a Reuters poll of 15 analysts.

Philips' medical division -- under scrutiny from analysts due to doubts whether it can meet its full-year targets -- showed a core profit of 182 million euros, down from 192 million the year before. Analysts had on average forecast a divisional EBITA of 228 million.

Philips said the unit's business for imaging systems, such as computed tomography (CT) machines, continued to be hit by a regulatory change in the United States that other business areas had not been able to compensate for.

Medical order intake rose just 3% from the year before on a currency-comparable basis, a slowdown from the 12% rise recorded in the second quarter. The unit targets annual organic sales growth of 6% and a core profit margin of 14 to 15% for 2007.

"The order intake number at medical is disappointing ... They won't meet their 6% target for top line, and they won't meet their 14 to 15% EBITA margin target either," Dresdner Kleinwort analyst Robert Sanders said.

"DAP was clearly very strong, but it's too small a division to really move the numbers," he said.

The Domestic Appliances unit, which makes coffee machines, shavers and electric toothbrushes, showed comparable sales growth of 20% and a 40% increase in core profit, driven partly by cost cuts.

Looking ahead, Philips said it expected the US healthcare market to be broadly flat compared to the previous year. "We expect to partially offset the impact on our business through sales growth outside North America and the contribution from acquisitions," the company said.

The medical division competes with GE Healthcare (GE is the parent company of CNBC) and Siemens Medical Solutions and is key to Philips' strategy of becoming a more predictable, higher-margin company. Group sales were up 3.3% at 6.52 billion euros and compared to an average forecast of 6.37 billion.