Thu, Jun 23, 2011 - Page 10 News List

Philips issues warning on profits as demand falters


Lighting and consumer electronics giant Royal Philips Electronics NV issued a shock profit warning yesterday, saying worse than expected demand in Western Europe hurt its performance in the second quarter of the year.

The company’s shares fell 10 percent in the first minutes of trading in Amsterdam, to 16.095 euros.

In a statement, the Amsterdam-based company said its lighting arm — which is the world’s largest lighting maker — will report low single-digit sales growth, down from mid-single-digit growth, along with shrinking margins.

The firm said the arm’s operating earnings before amortization would be about 85 million euros (US$123 million) against the previous quarter’s 193 million euros.

Philips said its consumer products arm is facing weak demand, declining licensing revenues and costs from exiting most of its television business. Here, it said operating earnings before amortization would be about 50 million euros, down from 119 million euros.

Philips said it would cut costs and take other unspecified measures in response. The company is due to report full second quarter earnings on July 18.

“The results are well below estimate and it is particularly disappointing that Philips does not really provide a credible explanation for the extent of the shortfall,” SNS Securities analyst Victor Bareno said.

Philips’ management will now lack credibility in setting long-term growth expectations, and he will downgrade financial expectations and probably his recommendation as well, Bareno said.

The company did not mention any impact on its third major division, which makes medical imaging equipment and is more insulated from consumer demand.

After first quarter earnings the firm had earnings would not be as strong in the remainder of the year, warning of “headwinds” to its supply chain after the Japan tsunami and nuclear disasters in March.

However, yesterday’s warning paints a worse picture than analysts had expected, particularly the erosion of margins in the company’s lighting business.

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