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Philips turnaround gathers pace
July 23, 2012 / 6:02 AM / in 5 years

Philips turnaround gathers pace

AMSTERDAM (Reuters) - Philips Electronics (PHG.AS) beat forecasts for second-quarter profit, boosted by sales of state-of-the-art hospital equipment and energy-efficient light bulbs, providing more evidence that a drastic overhaul of its business is starting to pay off.

Europe’s largest consumer electronics producer, the world’s biggest lighting maker, and a top-three maker of hospital equipment said on Monday it would consider options for its low-margin audio and video equipment business - one of the last units to get shaken up.

Philips was hammered last year by rising raw material costs, sagging consumer confidence, sluggish construction markets and government budget cuts that hit both its healthcare and lighting units.

In his first year at the top, Chief Executive Frans van Houten issued two profit warnings, reset financial targets, cut thousands of jobs, replaced his entire top executive team and eventually hived off the loss-making TV business.

On Monday he said he was confident Philips will make its 2013 financial targets.

“The general economy is not our friend, but we have seen some growth in Russia, the Middle East, Asia and the U.S.” van Houten told reporters.

Analysts, who had been hoping the firm would continue on a recovery path after a surprisingly robust first-quarter report earlier this year, welcomed the numbers.

“The second-quarter results were very strong, beating (expectations) on all lines, particularly at the clean earnings before interest, tax and amortization (EBITA) level, essentially driven by all three divisions, but particularly from healthcare,” said Sjoerd Ummels, ING analyst.

Healthcare sales were up 7 percent, boosted by sales of hospital equipment like scanners. In growth economies including India and China, sales rose 22 percent.

Frans van Houten, president and CEO of Philips, speaks during the presentation of the 2011 full-year results in Amsterdam January 30, 2012. REUTERS/Paul Vreeker/United Photos

“I think what you can also see is that each of the three end markets has so far performed better than the market anticipated, also organically which shows that Philips has demonstrated to be very competitive despite challenging markets,” Ummels added.

Philips’ shares were up more than 7 percent in morning trade, hitting the highest level in nearly a year.

Disposing of the audio and video unit, called Lifestyle Entertainment, would show that Philips is cleaning up the last unattractive parts of its portfolio of companies, according to SNS analyst Victor Bareno.

Like the TV unit that Philips sold in late 2011 the audio and video unit - which includes DVD and MP4 players - faces stiff competition from lower-cost Asian rivals flooding the markets.

As expected Philips, didn’t give a detailed outlook for the remainder of the year but reiterated its previous guidance for 2013 of 4-6 percent sales growth, EBITA margins for the group of 10-12 percent and 12-14 percent return on invested capital.

Philips, best known to consumers for its electric toothbrushes, TVs, wake-up lights and coffee makers, competes with Samsung (005930.KS) and LG Electronics (066570.KS) among others in consumer electronics, and with General Electric (GE.N) and Siemens (SIEM.NS) in the hospital and lighting markets.

Earnings before interest, tax and amortization (EBITA) rose to 450 million euros in the second quarter from 371 million the year prior. Each of the three units, healthcare, lighting and consumer reported higher sales while healthcare and consumer reported higher EBITA for the quarter.

Net profit was 167 million euros, above the 118 million analysts surveyed by Reuters had forecast. Group sales rose 5 percent.

Philips also said its 400 million euros ($487 million) cost- savings program for 2012 is on track.

(Reporting by Roberta B. Cowan; Editing by Erica Billingham)

This story was corrected to say two units reported higher EBITA, not three, in para 16; the corrected version also removes extraneous word in para 14

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