Philips posts euro59 million loss, recalls Senseos

[April 14, 2009]  AMSTERDAM (AP) -- Royal Philips Electronics NV, the Dutch lighting and consumer products maker, posted a first quarter net loss of euro59 million ($78 million) on Tuesday and said it would recall millions of defective coffee makers that may pose a safety risk.

Boilers of the Senseo brand machines affected may burst under certain conditions, the company said. It reserved euro30 million to repair or replace defective ones.

In the first quarter a year ago, the industrial conglomerate had net profit of euro294 million. Sales fell 15 percent to euro5.08 billion.

The loss was mostly due to declining demand across the company's businesses amid the economic downturn. Philips is the world's largest lighting maker and one of the top three makers of health care equipment, in addition to the consumer products for which it is best known.

As one of the first blue chip European industrial companies to report, its outlook will be closely scanned by analysts and investors for signs the economy is improving. But Philips gave no hint of seeing any recovery.

Chief executive Gerard Kleisterlee said in a statement the company had seen "a significant further deterioration" in its markets in the three months after the end of 2008, and the company expects no improvement in the second quarter.

Among Philips' major divisions, it showed a 19 percent fall in lighting sales, a 2 percent fall in sales of health care equipment, and a 25 percent decline in consumer electronics sales.

Those divisions showed operating earnings of euro7 million, euro75 million, and a loss of euro46 million, respectively.

"Despite the fact that we expected weak results, the actual numbers still disappointed," said analyst Eric de Graaf of Petercam Bank in a note on the earnings.

De Graaf maintained an "Add" rating on shares, saying Philips has a solid balance sheet and its stock is relatively cheap.

Shares rose 1.2 percent to euro12.365 in Amsterdam.

Spokesman Arent Jan Hesselink said Tuesday that the problem with Senseo machines affects a range produced from 2006 to 2008. In affected models, a heavy buildup of chalk in combination with a sudden power surge could cause the machine's internal boiler to burst and spill hot water.

Defective machines were sold in the Netherlands, Belgium, France, Germany and the United States, Hesselink said.

He estimated the chance of a machine bursting at "three in a million." Sixteen incidents of machines breaking have been reported, with no major injuries.

Hesselink said the company's policy on repairing or replacing affected machines varies, and Philips will begin a media campaign advising Senseo owners in each country on what to do on Wednesday.

Philips said the market for health care equipment, usually seen as insulated from economic downturns, had worsened in developing countries. Sales of health care equipment rose in developing countries, but margins worsened everywhere.

The company noted that with auto sales continuing to be weak -- automobile makers are a major buyer of its lights -- the outlook for 2009 is not improving.

"Ongoing deterioration in the global economy during the first quarter has resulted in weaker demand in our key markets than previously anticipated," Philips said.

It added: "We expect demand in the second quarter to be broadly in line with the first three months of 2009."

Philips said it was "accelerating" previously announced cost-cutting moves. The company cut 7,000 jobs in the fourth quarter to end the year with 121,000 workers, and then announced plans to shed 6,000 more.

Philips said Tuesday it had reduced its work force by 5,600 in the first quarter.

[Associated Press; By TOBY STERLING]

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