Philips to Boost Earnings Despite Profit Drop

LONDON--Dutch electronics maker Philips NV said Monday that net profit fell 23% during the second quarter due to unfavorable exchange rates and the suspension of its health care plant in Cleveland, but said earnings should improve in the second half of the year compared with the same period last year.

Net profit for the period ended June 30 was EUR242 million ($328 million), compared with EUR317 million a year earlier.

Sales fell 6% to EUR5.29 billion from EUR5.63 billion in the second quarter of 2013. Stripping out currency effects, sales were flat on an annual basis, with 7% growth at Philips's consumer electronics business, 1% sales growth in the lighting business and a 3% drop in sales at its health-care business.

The diversified-electronics manufacturer, whose products range from kitchen appliances to hospital scanners, has been cutting costs and divesting assets to focus on a handful of higher-margin activities. It recently announced plans to spin off its lighting components business and put the company's health-care unit, its largest business, under the direct control of the company's Chief Executive Frans Van Houten to instigate more rapid change amid flagging sales.

Philips said the group's second-quarter earnings before interest, taxes, and amortization or Ebita was EUR415 million, slightly ahead of its recent guidance of around EUR400 million but well below year-earlier earnings of EUR601 million due in part to setbacks at its health-care business.

"In the second quarter we continued to face headwinds, including ongoing softness in certain markets, unfavorable currency exchange rates and the voluntary suspension of production at our health care facility in Cleveland," said Mr. Van Houten.

Nevertheless, "while 2014 is expected to be a challenging year overall, we anticipate Ebita for the group, excluding restructuring and acquisition-related charges and other items, in the second half of the year to exceed the level of the same period last year," he said. He also reaffirmed that the company also remains committed to meeting its 2016 financial targets.

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