January 13, 2015 / 9:04 AM / 3 years ago

Slowdown, U.S. problems prompt Philips profit warning

3 Min Read

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.Toussaint Kluiters/United Photos

AMSTERDAM (Reuters) - Philips warned on Tuesday that fourth-quarter earnings would be worse than expected because of the lengthy closure of a manufacturing plant in Cleveland, Ohio and a slowdown in some of its major markets.

The latest profit warning from the Dutch industrial company comes after its stock underperformed benchmarks and Chief Executive Frans van Houten announced plans last year to break up the company, splitting off its lighting business.

Philips, which plans to focus on its higher margin healthcare division, said a weak fourth quarter will also reflect "ongoing softness in certain markets and stronger-than-anticipated foreign exchange headwinds in emerging markets."

Philips, due to publish results on Jan. 27, now expects adjusted earnings before interest, taxation and amortization (EBITA) of 735 million euros ($870 million) for the quarter.

Company-published analyst consensus estimates had been 795 million euros, versus 915 million euros in the fourth quarter of 2013.

Philips shares were down 1.85 percent to 23.34 euros by 1345 GMT, after falling 3 percent in morning trade.

Philips' stock has fallen 15 percent over the past year, a period in which the S&P 500 rose more than 11 percent.

Components Sale?

Van Houten announced plans to sell its lighting and automotive components business in June and to separate the rest of its lighting division in September.

Philips said Tuesday it is making progress in "attracting external investors" for the components business which analysts say could be worth around 2 billion euros.

ING analyst Robin van den Broek, who rates Philips' shares a buy, said 2015 may hold positive surprises, including the sale of the components business.

"Today’s profit warning in our view will offer an attractive entry point," he said in a client note.

Philips raised its estimate of the impact on full-year operating earnings from the closure of the Cleveland factory, which makes high-end imaging equipment used in clinics and hospitals.

The plant was shut down in April after federal regulators criticized the quality control processes. The closure will have reduced Philips' 2014 EBITA by approximately 225 million euros, the company said, up from a previous estimate of 180 million.

Philips spokesman Steve Klink said the factory never produced flawed products, but its quality control systems had not met federal guidelines.

The problems are now resolved and the healthcare business, which accounts for 40 percent of company sales, can resume growth, Philips said.

($1 = 0.8450 euros)

Reporting by Toby Sterling; editing by Keith Weir

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