Philips’ earnings easily beat forecasts, cautious on China

Philips reported higher quarterly medical equipment sales and improved margins in its consumer and lighting businesses on Monday but cautioned that growth was slowing in China and other emerging markets.

The company said it expected modest sales growth for this year as it reported a 12.8 per cent rise in second-quarter net profit to €274 million.

That was well above the €107 million average forecast of analysts polled by Reuters, and sent Philips’ shares up more than 3 per cent in Amsterdam.

Restructuring efforts, which have seen the consumer goods and healthcare equipment maker cut around 1,500 jobs over the past year, lifted margins in its consumer and lighting businesses. However, margin improvements at its healthcare business, which is increasingly vital for the Dutch group as it plans to spin off its lighting operations, were mostly gobbled up by the effects of a strong dollar on its global operations.

Chief rxecutive Frans van Houten said in a statement he was encouraged by Philips’ improved results, but added that he was increasingly concerned about the global economic environment “particularly in China, Russia and Latin America.”

China is Philips’ second-largest market after the United States. “We had enjoyed some strong double-digit growth in past years. That has dropped to single-digit territory,” Mr Van Houten noted.

Nonetheless, the maker of goods like shavers, toothbrushes and coffee makers as well as CT scanners and patient monitors, said it expects a modest increase in sales this year and improved operating performance in 2016.

Marc Zwartsenburg, an analyst at ING, who rates the stock "buy" said Philips' 2016 outlook appeared to be more cautious.

Philips aims to dispose of its lighting division, the world’s largest maker of light bulbs, via a sale to another company or an eventual stock market flotation.

The company said on Monday that it estimates the cost for the process of splitting the lighting business into a separate corporate entity to be €200 million to €300 million this year, lower than the €300 million to €400 million it expected previously.

It said it expects to book another €200 million to €300 million in separation costs, including restructuring, in 2016.

Philips’ shares rose 3.4 per cent after the results’ announcement, the best performers on Amsterdam’s blue-chip index , which was down slightly on the day. Reuters