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Philips Earnings Rose on Improved Sales and Cost Cuts

Oct. 23, 2017
The company is doing well and its refocus on medical equipment, which was prompted largely by rising competition from Asia in the consumer and lighting segments, is paying off.

Electronics giant Philips, which is focusing its business on medical equipment and services, said Oct. 23 that its profit margin and net earnings both rose in the third quarter as it cut costs and stepped up sales.

Net profit jumped 10% to 423 million euros (US$498 million) for the period from July through September.

Meanwhile sales climbed by four percent from the previous quarter to 4.1 billion euros, while orders rose by five percent.

"Despite ongoing global uncertainties, our outlook for 2017 remains unchanged," chief executive Frans van Houten said, adding that "we are on track to deliver four-six percent comparable sales growth and an improvement" by one percent in its measure of operating profit margin.

Last year the firm measured its operating profit at 10.5% of sales. In the third quarter it came in at 12.8%.

It also said it was on track to deliver annual cost savings of 400 million euros.

"I am satisfied. We are performing to our plan," Van Houten said. 

The Amsterdam-based firm may probably best known for its consumer electronics and lighting businesses, but Philips has in recent years pivoted towards serving the health care industry.

 Although it had sold light bulbs almost since it was founded in 1891, Philips last year spun off the lighting unit.

 As it no longer owns a majority and will likely soon lose control of the unit it has now moved it into discontinued operations in its accounts, meaning it is no longer included in measures of sales and operating profit growth.

 The refocus of the business on medical equipment was prompted largely by rising competition from Asia in the consumer and lighting segments.

 "The big benefit of the separation is that both companies now have focus and are improving their business results," said Van Houten.

 Philips said that growth momentum continued in China, Latin America and India in the third quarter, noting the double-digit growth in its diagnostic imaging order intake.

 While Philips was "starting to close the gap in terms of valuation with our health technology peers, there is still a long way to go," acknowledged Van Houten.

 Earlier this month the company took a hit when it announced that it was temporarily suspending production of defibrillators for the U.S. market to allow closer inspections in a deal reached with the American government.

 Philips insisted that the decision was not related to any question about the quality of the machines and that they posed no health risk to patients.

 The production halt would likely last until the third quarter of 2018 and could cut earnings before interest and taxes by some 20 million euros in the final quarter of 2017, and a further 60 million euros in 2018.

"While a setback, we think it was not unexpected and we are in good shape to deal with the consequences," Van Houten said.

 Copyright Agence France-Presse, 2017

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