While struggling in the consumer electronics market, Philips is reporting record revenues from light bulbs as consumer and business look to save energy. Philips has also benefited from the sale of assets such as its chip division.
In their latestest financial results Philips net income rose to $2 billion, or 1.30 euros a share, from 680 million euros, or 59 cents, a year earlier. Sales climbed 3.8 percent to 8.37 billion euros, Philips said today. Analysts had predicted a profit of 1.23 billion euros, the median of 10 analysts estimates.
Philips forecast “robust” growth in sales of fluorescent lamps and light-emitting diodes used to illuminate shops and office buildings, as governments around the world persuade consumers to switch to energy-saving bulbs. Chief Executive Officer Gerard Kleisterlee has sold most of Philips’ chip division and Taiwan Semiconductor Manufacturing Co. shares to pay for takeovers in lighting, medical equipment and appliances.
“The results are pretty good, consistent and more stable without the semiconductors,” said Jack Neele, who manages 100 million euros including Philips shares at Robeco NV in Rotterdam. “Philips has to prove the new strategy works and, according to these figures, that will be the case in the coming quarter.”
Philips proposed paying a dividend of 70 cents a share for 2007, a 17 percent increase from the previous year.
Philips fell 20 cents, or 0.8 percent, to 24.18 euros in Amsterdam trading. The shares have lost 18 percent this year, in line with the benchmark Amsterdam Exchanges Index.
Acquisitions
Amsterdam-based Philips has announced or completed more than 10 billion euros of purchases since 2005, including Genlyte Group Inc., whose systems are used to illuminate office buildings, shops, streets, factories and gas stations.
Revenue surpassed the 8.14 billion euros analysts had predicted, according to the survey.
The units making lamps and domestic appliances fueled growth. Earnings before interest, tax and amortization rose 17 percent to 865 million euros as profitability improved at the lighting unit.
Sales at the lighting unit climbed 14 percent to 1.66 billion euros. The division’s earnings before interest, tax and amortization increased 37 percent to 185 million euros. Revenue was helped by “profitable growth in energy-efficient lighting,” Philips said. The company is Europe’s largest maker of energy- saving lamps.
Revenue from energy-saving compact fluorescent lamps rose 32 percent last year, spokesman Joon Knapen said without disclosing the actual sales number.
Asset Sales
The company said today it recorded 1.09 billion euros of gains from selling shares in Taiwan Semiconductor and LG.Philips LCD Co. Philips said earlier it incurred charges of 380 million euros for the sale of its 70 percent stake in MedQuist Inc. and the disposal of a majority stake in the chip unit in 2006.
Philips has sold more than two-thirds of its 16.2 percent stake in Hsinchu, Taiwan-based Taiwan Semiconductor, the world’s largest customized-chipmaker, since saying in March it planned to divest its shares.
The Dutch company holds 19.9 percent of semiconductor-maker NXP BV after selling control of the unit to a group of buyout firms in 2006. Philips also sold a 13 percent stake in LG.Philips LCD, the world’s second-largest maker of liquid-crystal displays, and now owns 19.9 percent.
Panel Contribution
On Jan. 14, Seoul-based LG.Philips reported a record quarterly profit on surging demand for screens used in computers and televisions. LG.Philips’ fourth-quarter net income was 760 billion won ($811 million), compared with a loss of 174.3 billion won a year earlier. That beat the 654 billion-won median estimate of 17 analysts Bloomberg surveyed by phone and e-mail.
Philips has said asset sales and a plan to increase debt will leave cash for takeovers in medical equipment and lighting. The company said Dec. 21 it agreed to buy U.S. medical-equipment maker Respironics Inc. for 3.6 billion euros in its largest-ever acquisition.
Philips last year also agreed to buy Genlyte for $2.7 billion, whose systems are used to illuminate office buildings, shops, streets, factories and gas stations. The acquisition will help the company boost sales of systems using high-power LEDs.
Since 2005, Philips also completed or announced 10.2 billion euros of share buybacks. The company received more than 12 billion euros of proceeds from divestments over the same period. The company’s 5 billion-euro program announced on Dec. 19 will “largely” be completed by the end of the year, it said today.
“Philips now has to show it can grow its existing and acquired businesses,” Wing-Yen Choi, an analyst at Theodoor Gilissen in Amsterdam who rates the stock “buy,” said before the report. “Otherwise the whole transformation has been an empty promise.”
Raised Forecasts
On Sept. 10, Philips raised its profit forecast because of lower costs linked to the planned merger of its health-care units and of the consumer divisions. Earnings before interest, tax and amortization will top 10 percent of sales by 2010 and operating earnings per share will more than double, the company said.
Philips is looking “with confidence” at 2008, Kleisterlee said on a conference call with reporters. The 2010 targets “stand firmly,” he said.
From 2008 through 2010, Philips aims to achieve at least 6 percent annual average sales growth excluding currency effects, acquisitions and divestments, the company has said. At a press conference at the company’s headquarters in Amsterdam, Kleisterlee declined to give a forecast for sales this year.
As of Jan. 1, the company will have three main businesses: consumer lifestyle, health care and lighting. Philips will merge its consumer electronics, domestic appliances and personal care units into one division called consumer lifestyle. The health- care unit will be created through the combination of Philips’ consumer health-care solutions and medical systems divisions.
Cost Savings
The revamp will save the company as much as 200 million euros annually.
Credit-default swap contracts based on Philips have risen 21 basis points to 66 so far this year, according to data compiled by Bloomberg. Credit-default swaps are used to speculate on a company’s ability to repay debt. A rise indicates worsening perceptions of credit quality.
“It’s still not a really magnificent corporation, but they’re on the right track,” said Wim Zwanenburg, a fund manager at Bank Degroof Group, which oversees $39 billion and doesn’t hold Philips shares. “Strategically, the company is looking better and better.”
