Philips healthcare orders rise, bringing relief after two-year overhaul

Mon Jul 22, 2013 10:29am EDT
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By Sara Webb

AMSTERDAM (Reuters) - Philips PHG.AS said orders at its healthcare division - now its most profitable after a strategic overhaul - rose more than expected in the second quarter thanks to new ultrasound and scanning products and strong demand from China.

Orders rose 7 percent compared with a year ago, reversing a 5 percent drop in the first quarter, and along with the rest of the company's results were better than expected after two years of job cuts, divestments and a change of business strategy.

Shares in the Dutch firm hit 24.405 euros in early trade on Monday, their highest since January 2011.

Philips has been selling off much of its consumer electronics business over the past 18 months - divesting its television, audio and video operations as it struggled to compete with lower-cost Asian manufacturers, to focus on more profitable home appliances, lighting and healthcare.

It now derives more than 40 percent of its sales and 70 percent of its EBITA (earnings before interest, tax and amortization) from healthcare. It is ranked the leading medical equipment supplier in the United States and a top-three producer of hospital equipment worldwide.

Chief executive Frans van Houten stuck to the company's full-year targets - sales growth between 4 and 6 percent, a margin on EBITA of 10 to 12 percent and a return on invested capital of 12 to 14 percent - and said he would update the market in September on the company's new financial goals.

"The...increase in healthcare equipment orders (North America swinging back to positive growth) should provide increased comfort forecasts can be met," said analysts at Kepler Cheuvreux.

"We think the full potential of the turnaround has yet to be reflected in Philips' share price. With further upside to margins, we believe there is also further upside for shares."   Continued...

The logo of Philips is seen at the company's entrance in Brussels September 11, 2012.REUTERS/Francois Lenoir