Philips warns healthcare unit will miss forecast earnings

[July 08, 2014]  By Thomas Escritt

AMSTERDAM (Reuters) - Philips <PHG.AS> warned its healthcare business would miss forecast earnings but went some way to reassure investors by adding its chief executive would take direct charge of the unit, which contributes 40 percent of company revenues.

The company, which has recently undergone a major reorganisation to put healthcare at its core along with lighting, said second-quarter earnings before income, tax and amortisation from the unit would disappoint at around 220 million euros ($300.09 million), while group EBITA would be in line with forecasts at about 400 million euros.

But Philips' shares rose almost 1 percent after the announcement on Tuesday, in which chief executive Frans van Houten said he would take direct charge of the division, whose existing head Deborah DiSanzo will leave the company.

"The quick reaction of the company to a weak first-half healthcare performance displays a sense of urgency," said Andreas Willi, an analyst at JPMorgan in a note.

The earnings miss is partly the result of Philips' decision in January to suspend production at a plant in Cleveland, Ohio, after an inspection of the plant by the United States Food and Drug Administration.

"We anticipate ... EBITA performance in Healthcare to improve in the second half compared to the same period in 2013 as, among others, Cleveland gradually resumes production in the course of the third quarter," Van Houten said, without giving further information about the other factors that would help.

A Philips spokesman said halting production at the plant, which makes CT scanners and nuclear medicine products, would cost the company 60 to 70 million euros EBITA over 2014.

The company said the shortcomings identified by the FDA did not relate to product safety.

Willi at JP Morgan cautioned that: "An up to 4 percent cut to full year consensus healthcare EBITA may weigh more than the offset elsewhere given healthcare is the 'highest multiple' business at Philips."

Philips' healthcare division has played a central part in the company's reinvention from a consumer electronics company into a high-end medical solutions and lighting company.

Last month, the company announced plans to spin off its lower-value lighting components manufacturing business to concentrate on providing higher-value services and lighting systems.

Philips second quarter results are due on July 21.

(Reporting By Thomas Escritt; Editing by Sophie Walker)

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