Royal Philips Electronics reports lower than expected 1Q profits

Royal Philips Electronics NV reported first-quarter profit that undershot estimates by analysts as sales declined at its lighting and health-care businesses.

Earnings before interest, taxes, amortisation and one-time items stood at €421 million according to the world's largest lighting manufacturer. The stock fell 3.1 per cent in Amsterdam trading.

Chief executive officer Frans van Houten told Bloomberg TV, in an interview that the world was now an uncertain place, adding that US hospitals were holding back on spending amid the country's health-care reform. He added, sales suffered in the lighting business, with construction companies cutting orders amid the economic slowdown.

The results come as a setback for van Houten as he tried to push the Amsterdam-based manufacturer into higher-margin areas such as lighting products that saved energy, health-care equipment and wellness offerings to move away from its traditional consumer electronics line. Philips' consumer business had shrunk over the years as customers flocked to competitors such as Sony Corp or Apple Inc for mobile communications and music devices.

First-quarter sales fell 0.9 per cent to €5.26 billion, which fell short of the €5.48 billion analyst estimate. Health- care sales fell 3.7 per cent even as lighting revenue declined 2 per cent. The two units accounted for around 80 per cent of Philips' total sales. Sales at the consumer lifestyle unit were up 9 per cent.

According to van Houten, who had driven Philips' restructuring over the past two years, the outlook for healthcare was particularly tough in the US, where executives in the sector were cautious about spending plans ahead of healthcare reforms.

The company said it was on track to achieve its end-2013 targets of sales growth of between 4 and 6 per cent, a margin on EBITA (or earnings before interest, tax and amortisation) of 10 to 12 per cent, and a return on invested capital of 12 to 14 per cent.

According to Van Houten, he would update the market on his new financial targets and strategy for the next few years on 17 September.

According to some analysts, in future, Philips would likely shift away from share buybacks and to return more cash to its investors through higher dividends or special dividends.

Van Houten who was on a conference call with reporters, said Philips was not a serial share buyback company and that it would complete its €2 billion share buyback in the second quarter.