Philips warns healthcare unit will miss forecast earnings

Tue Jul 8, 2014 4:19am EDT
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By Thomas Escritt

AMSTERDAM (Reuters) - Philips (PHG.AS: Quote) warned its healthcare business would miss forecast earnings but went some way to reassure investors by adding its chief executive would take direct charge of the unit, which contributes 40 percent of company revenues.

The company, which has recently undergone a major reorganisation to put healthcare at its core along with lighting, said second-quarter earnings before income, tax and amortisation from the unit would disappoint at around 220 million euros ($300.09 million), while group EBITA would be in line with forecasts at about 400 million euros.

But Philips' shares rose almost 1 percent after the announcement on Tuesday, in which chief executive Frans van Houten said he would take direct charge of the division, whose existing head Deborah DiSanzo will leave the company.

"The quick reaction of the company to a weak first-half healthcare performance displays a sense of urgency," said Andreas Willi, an analyst at JPMorgan in a note.

The earnings miss is partly the result of Philips' decision in January to suspend production at a plant in Cleveland, Ohio, after an inspection of the plant by the United States Food and Drug Administration.

"We anticipate ... EBITA performance in Healthcare to improve in the second half compared to the same period in 2013 as, among others, Cleveland gradually resumes production in the course of the third quarter," Van Houten said, without giving further information about the other factors that would help.

A Philips spokesman said halting production at the plant, which makes CT scanners and nuclear medicine products, would cost the company 60 to 70 million euros EBITA over 2014.

The company said the shortcomings identified by the FDA did not relate to product safety.   Continued...

A Philips logo is seen at Philips headquarters, where Philips CEO Frans van Houten gave a presentation of the company's 2013 full-year results, in Amsterdam January 28, 2014.  REUTERS/Toussaint Kluiters/United Photos