Philips sees more costs in 2015, cuts earnings targets

Philips, the Dutch healthcare and lighting company, on January 27 said it expects up to 400 million euros ($449 million) in restructuring costs this year as it prepares to spin off its lighting division. Philips reported fourth-quarter earnings in line with expectations, but said it would miss 2016 sales and earnings targets by 1 percent. "Overall, 2014 was a setback in our performance trajectory," said Chief Executive Frans van Houten.
Van Houten announced plans last year to break up the 123-year-old company, traditionally known for its light bulbs, to focus on the higher-margin healthcare business. Philips said it is making progress with prospective buyers for its components division, which analysts say is worth around 2 billion euros, and expects a deal in the first half of this year.
Philips said it expects sales growth and margin improvement in 2015 but "looking ahead, we remain cautious regarding the macroeconomic outlook and expect ongoing volatility of some of our end-markets." Philips posted a net profit of 134 million euros ($150.6 million), down from 412 million a year earlier. The company had guided to that level with a profit warning on January 14. The fourth quarter figures included 279 million euros in one-time charges.
Philips is also separating its lighting business, the largest lighting company globally by sales, with an eye to an IPO in 2016.
Philips said it expected 300 million-400 million euros in restructuring costs this year, with more to follow in 2016.
Fourth quarter sales rose 2.2 percent to 6.54 billion, it said.
The company had previously forecast sales growth of 4-6 percent between 2014-2016 and a margin on EBITA, or earnings before earnings, taxes and amortisation, of 11-12 percent by 2016.
After spinning off the lighting and components operations, Philips will comprise the healthcare division and Philips' consumer products arms, which sells household appliances such as shavers and coffee makers.
Lighting sales fell 3 percent year-on-year, as a 14 percent fall in sales of traditional incandescent bulbs outweighed a 20 percent increase sales of in high-margin LED lights.
LEDs make up 37 percent of Philips lighting sales. The arm reported an operating loss of 83 million euros due to restructuring costs, but Philips said it is profitable on an underlying basis.