January 24, 2011 / 12:16 AM / 8 years ago

Philips quarterly net profit seen more than doubling

AMSTERDAM (Reuters) - Philips Electronics is set to post a doubling of quarterly profit on Monday, setting it up for the challenges of weak consumer spending, sluggish construction markets and upcoming management changes.

From April there will be change at the top two posts, after Frans van Houten steps up as chief executive, and Ron Wirahadiraksa becomes chief financial officer.

Both men have restructuring and cost-cutting track records and have experience in Asia, where the Dutch shavers-to-scanners giant is keen to expand further, with a focus on fast-growing emerging markets.

Van Houten, a former chief executive of Philips’s semiconductor business NXP, was appointed chief operating office on January 1 in preparation for taking the helm in April.

“Some investors have been a tad spooked by the absence of a familiar management team,” said Sjoerd Ummels, ING analyst.

“These fears are overblown, since the new management know Philips, have long histories with Philips, and have said they will continue with the current strategy for the first years.”

Philips is expected to report fourth-quarter net profit of 532 million euros, more than double the year-ago figure of 251 million euros, according to a Reuters poll of 20 analysts, spurred by growth in emerging markets, cost cuts and lower tax.

The maker of high-end medical equipment, lighting systems, and audio visual equipment, is also expected to easily exceed its 10 percent margin target for adjusted earnings before interest, tax and amortization (EBITA) for 2010.

Analysts expect fourth-quarter sales to rise 4.3 percent to 7.56 billion euros from 7.26 billion a year ago, lifted by the healthcare and lighting divisions, while sales at the toasters-to-televisions consumer lifestyle business will be weighed down by another quarter of sliding TV sales.


Philips, which competes with General Electric and Germany’s Siemens, said in October that the fourth quarter would be seasonally strong but warned of potential inventory management challenges as retailers run down their stocks and a soft construction market affects demand for its lights and lighting equipment.

On Friday, General Electric reported better-than-expected earnings for the quarter. Earlier this month, Siemens reported that year-on-year order growth at its healthcare sector in the last three months of 2010 was driven by its medical imaging business, ING’s Ummels noted.

Philips warned in December that due to continued difficult market conditions and a delay in completing a licensing deal, its TV business will post a 60-90 million euro loss for 2010.

It was a television pioneer in the 1930s, but has since lost out to Asian rivals. Apart from short periods ahead of big sporting events such as World Cup soccer and the Olympics, its TV sales have regularly fallen quarter on quarter.

The firm is in the process of licensing its televisions to third parties and said late last year the unit would be “managed for cash” and that it would resume profitability in 2011.

When Philips reports on Monday, investors will seek more details about plans for the television business and outlook for the core units — healthcare, lighting and consumer lifestyle — given weak economic growth in the U.S. and Europe, and Philips’s transition to a new management.

New commercial construction projects account for about 25 percent of sales at the lighting unit, but there’s no sign of a recovery any time soon.

“The construction market is still weak; in fact it’s a highly problematic area, and most analysts don’t expect a recovery in Western Europe and North America until the end of the year,” said Ummels.

Editing by Sara Webb and Will Waterman

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