Philips Post Weaker Profit Amid Restructuring--2nd Update

By Maarten van Tartwijk 

AMSTERDAM-- Koninklijke Philips NV on Tuesday posted a 28% fall in first-quarter net profit, hurt by costs related to the separation of its lighting activities, even as it recorded a rise in sales thanks to the weaker euro.

Philips said net profit dropped to EUR99 million ($108 million) in the first three months of 2015, compared with EUR138 million in the same period a year earlier, weighed down by EUR97 million in restructuring costs and other special items.

The Dutch electronics giant was the latest European multinational to benefit from the recent weakening of the euro, posting annual sales growth of 14% to EUR5.34 billion in the quarter. Comparable sales, which strips out the impact of currency benefits, rose 2%, the first increase since the fourth quarter of 2013.

Chief Executive Officer Frans van Houten said the return to sales growth was encouraging, although he voiced concerns for the remainder of the year. With sluggish economic conditions in China and Russia and a fragile recovery in Europe, growth will remain modest this year, he said.

Philips is planning to separate its 123-year-old lighting business to focus on selling medical-equipment and consumer lifestyle products. It plans to spin off the bulk of its lighting business through an initial public offering next year. Last month, it reached a deal to sell a majority stake in its lighting components and automotive-lighting operations.

The restructuring is aimed at making Philips simpler and easier to manage, although it will be a costly and complex operation that could take its toll on profits. Philips' profit margin came in at 4.3% in the first quarter, down from 5.4% in the prior-year period.

"Investors have to navigate through 2015 first, which is likely to be a messy and weak year," Jefferies analyst Peter Reilly said in a research note.

Philips' health care arm, which makes hospital scanners and other medical-equipment, recorded comparable sales growth of 1% to EUR2.26 billion in the first quarter. The unit's profit margin slumped to 2.9% from 7.7% last year, primarily because of one-offs and higher investments.

The consumer-lifestyle business, which makes everything from shavers to coffee machines, recorded a 10% rise in comparable sales to EUR1.19 billion, driven by strong demand for electric toothbrushes.

The lighting business was the only division to record a decline in comparable sales, with revenue sliding 3%. Philips blamed a faster decline in its conventional lighting business and a weak performance at its professional lighting activities in North America.

Mr. van Houten said Philips is making good progress in setting up a separate company for the lighting business, and reiterated that the IPO for the unit could occur in the first half of 2016.

Write to Maarten van Tartwijk at [e-mail]

Access Investor Kit for Royal Philips NV

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=NL0000009538

Access Investor Kit for Royal Philips NV

Visit http://www.companyspotlight.com/partner?cp_code=P479&isin=US5004723038