Dutch electronics giant Royal Philips Electronics NV (PHG) reported Monday that its profit for the third quarter more-than tripled from last year, boosted by lower one-time charges, despite a 11% drop in sales. Looking ahead, the company said it remains cautious about the short-term outlook in the absence of structural recovery in majority of its end-markets.
Net income for the quarter was 176 million euros, higher than 58 million euros in the comparable period last year. Third-quarter net income attributable to stockholders grew to 174 million euros or 0.19 euros per share from prior year's 57 million euros or 0.06 euros per share.
Excluding prior year's profit from discontinued operations, income from continuing operations grew to 176 million euros from 37 million euros in the previous year period.
The latest quarter results included a gain of 87 million euros related to a release of a provision for retiree medical benefits, restructuring and acquisition-related charges of 125 million euros, and a 30 million euros partial reversal of last year's TPV impairment loss.
Meanwhile, prior-year results included a 342 million euros financial gain on the sale of TSMC shares, more than offset by a 259 million euros asbestos-related settlement charge, 74 million euros of restructuring and acquisition related charge, and 189 million euros in impairment losses at LG Display and Toppoly.
Sales for the quarter were 5.62 billion euros, down 11% from 6.33 billion euros in the prior-year period. A positive currency impact of 2% was offset by portfolio changes, the company noted. Comparable sales were down 11%, mainly attributable to Consumer Lifestyle and Lighting, however, improved from a 19% drop recorded in the preceding second quarter.
On a segmental basis, Healthcare sales edged up 1% to 1.82 billion euros from last year's 1.81 billion euros, while sales dropped 4% on a comparable basis, as growth at Customer Services and Home Healthcare Solutions was more than offset by lower results at Clinical Care Systems, Imaging Systems and Healthcare Informatics.
Sales from Consumer Lifestyle segment fell 20% to 2.07 billion euros from 2.58 billion euros in the prior year. The drop was 15% on a comparable basis, hurt by lower sales in all businesses except Health & Wellness.
Lighting sales in the quarter dropped 11% to 1.65 billion euros from 1.85 billion euros last year, and comparable sales fell 13%, due to double-digit declines at professional Luminaires, Lighting Electronics and Automotive Lighting.
On a geographical basis, quarterly sales from total mature markets declined 10% on a nominal basis and 11% on a comparable basis to 3.86 billion euros. Sales from Western Europe dropped 7% to 1.97 billion euros and North American sales fell 14% to 1.58 billion euros. On a comparable basis, sales declined 6% and 16%, respectively, in each region. In the emerging markets, the company's sales were 1.76 billion euros, down 15% on a nominal basis and 11% on a comparable basis.
Despite lower sales, total gross margin in the quarter increased to 1.98 billion euros from 1.91 billion euros a year ago, reflecting lower cost of sales to 3.65 billion euros. Gross margin as a percentage of sales was 35.2%, higher than prior year's 30.2%.
EBITA was 344 million euros or 6.1% of sales, up significantly from 57 million euros or 0.9% of sales in the year-ago quarter. Income from operations or EBIT was 237 million euros, compared to a loss of 133 million euros last year.
Financial income plunged to 35 million euros from 421 million euros a year ago. Financial expenses also fell to 79 million euros from last year's 263 million euros.
Commenting on the results, Gerard Kleisterlee, President and Chief Executive Officer of Philips said, "Our Q3 results are a reflection of our strong fundamentals and the proactive manner in which we have been managing our costs, allowing us to deliver an underlying profitability of 6.8% of sales in the quarter, among the highest in recent years for the third quarter."
In the preceding second quarter, Philips had reported a sharp decline in its profit to 44 million euros or 0.05 euros per share from 732 million euros or 0.72 euros per share last year, hurt by lower sales across all its business sectors. The company's quarterly sales were down 19% to 5.23 billion euros. Philips then had noted that it expects comparatively better performance in the second half of 2009, but remains cautious about its sales level and overall economy.
Among others in the sector, Panasonic Corp. (PC) is slated to release its second-quarter results on Friday, October 30. While announcing a first-quarter net loss of 61.36 billion yen or 25.58 yen per basic share, and a 26% drop in sales to 1.596 trillion yen, the Japanese consumer electronics manufacturer had revised upwards its forecast for the first half of the year, citing the market recovery of general electronic components and effects of economic stimulus measures, despite ongoing price competition. Panasonic also expects that the outlook for global economy will continuously be uncertain for this second quarter onward.
Panasonic now expects first-half consolidated net loss attributable to the company to be 100 billion yen or 48.29 yen per share, compared to previous loss forecast of 195 billion yen or 94.17 yen per share. Sales for the first half is currently projected to be 3.30 trillion yen, higher than previously expected sales of 3.26 trillion yen. Operating loss is expected to be 20 billion yen, an improvement from previous loss forecast of 105 billion yen.
Another peer General Electric Co. (GE) is scheduled to release third-quarter results on Friday, October 16. Analysts' polled by Thomson Reuters expect the company to post earnings of $0.20 per share on revenues of $40.03 billion for the third quarter, lower than prior year's earnings and revenues of $0.45 per share and $47.23 billion, respectively.
Last week, South Korean conglomerate Samsung Electronics Co. Ltd. (SSNLF.PK) said that it expects to report a sharp increase in third-quarter operating profit, which is now expected to be about 4.1 trillion won, with an estimated range between 3.9 trillion won and 4.3 trillion won. Consolidated sales are expected to be about 36 trillion won, within a range between 35 trillion Won and 37 trillion Won. In the previous year, the company had reported operating profit of 1.48 trillion won and revenue of 30.27 trillion won, on a consolidated basis. Samsung has been witnessing increase in demand for its televisions and mobile phones and a stronger dollar also must have helped sales. Additionally, prices of chips and flat screens have increased of late.
South Korean consumer electronics and mobile communications company LG Electronics Inc. (LGERF.PK) expects third-quarter sales to grow more than 10% from last year and aims to maintain profitability at prior year's level, as demand for LCD TVs and mobile phones continues to expand. LG projects constant growth in handset and TV, and noted that it actively copes with changes in the global economy and competition environment.
For the first nine months of fiscal 2009, Philips' net income plunged to 164 million euros from 1.087 billion euros a year ago. Net income attributable to stockholders was 159 million euros or 0.17 euros per share, compared to last year's net income of 1.083 billion euros or 1.06 euros per share. Nine-month sales fell to 15.93 billion euros from 18.76 billion euros in the same period last year. Comparable sales were down 16% for the period.
Looking ahead, the company said in a statement, "While encouraged by the positive development in sales and profitability during the third quarter, we remain cautious about the short-term outlook in the absence of structural recovery in the majority of our end-markets. Consequently, we will continue to focus on managing costs and cash flow while progressing with actions to capitalize on future economic growth."
In the fourth quarter, the company projects that healthcare segment would record restructuring and acquisition related charge of around 35 million euros, while Consumer Lifestyle would record restructuring charge of 40 million euros, and acquisition related charges of 10 million euros. In Lighting, restructuring and acquisition related charges of around 85 million euros are projected in the fourth quarter, and Group Management &Services would record restructuring charges of 30 million euros, largely related to realignment of R&D activities.
Further, Philips pointed out that in the third quarter, the opposition filed against TH Agriculture & Nutrition's, or THAN, plan of reorganization has been successfully resolved. The company said it expects that the US District Court will affirm the plan in the coming weeks, provided that there will be no further opposition to the plan. If affirmed, the plan would become effective in the fourth quarter, triggering THAN and Philips Electronics North America Corp.'s obligation to fund an asbestos personal injury trust with $900 million or around 600 million euros. Philips said it has already provided for the amount.
PHG closed Friday's regular trading session at $25.11, up $0.01 or 0.04%, on a volume of 492,111 shares. In the past 52 weeks, shares have been trading between $13.91 and 26.09.
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