Philips makes Q3 profit of $730M, warns on sales

[October 18, 2010]  AMSTERDAM (AP) -- Royal Philips Electronics NV, the Dutch maker of shavers, TVs and light bulbs, said Monday net profit tripled in the third quarter due to growth at its lighting and health care arms and a one-time gain on the sale of a stake in its semiconductor unit. It warned, however, that the outlook for sales through the end of the year is uncertain.

Net profit was euro524 million ($730 million), up from euro176 million in the third quarter a year earlier, and included a euro154 million gain on the share of Philips' stake in semiconductor maker NXP NV. Sales rose 9.6 percent to euro6.16 billion, helped by a relatively weak euro. They would have been up just one percent on comparable terms, the company said.

Margins were helped by lower restructuring charges, down to euro40 million from euro125 million, as the company has cut 2,300 jobs since this time last year.

Analyst Victor Bareno of SNS Securities called it a "mixed quarter," in which profits were better than expected but sales worse.

"Despite the weaker top line in Q3 we still see drivers for solid growth in the core health care and lighting units in 2011, and potential for further margin improvement," he said, repeating a "Buy" recommendation on shares.

Shares dropped 3.3 percent in early Amsterdam trading to euro23.085.

Chief Executive Officer Gerard Kleisterlee described the global economy as "still fragile" and the company warned it has little visibility on sales prospects in the fourth quarter.

Sales in emerging markets rose 19 percent -- or 7 percent in euro terms. "This means that we now generate more than one-third of our sales in these markets," Kleisterlee said in a statement.

But the company added a somber note on its sales outlook.

"Given the uncertain economic climate and fragile consumer confidence in some of our markets, we take a cautious view on revenue development in the fourth quarter," Philips said in a statement.

"We expect it to be a seasonally strong quarter as our growth businesses and growth geographies continue to deliver," but that could be undercut by stores keeping inventory tight and by a soft construction market.

Philips' lighting division is benefiting as consumers switch to energy-saving bulbs and it was the company's strongest performer in the quarter with sales up 16 percent and operating earnings quadrupling from euro40 million to euro169 million.

At the company's consumer products division, which makes shavers and televisions, sales rose 1 percent despite a dip in television sales after the World Cup. Operating profit rose from euro126 million to euro137 million.

Philips' health care arm grew sales 14 percent and operating profits nearly doubled from euro110 million to euro212 million, as margins improved and sales grew in most areas outside the United States. However, the company said that North American orders were up 11 percent in the quarter, signaling future improvement as uncertainty over U.S. health reform eases and purchasers resume buying.

[Associated Press; By TOBY STERLING]

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