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Philips shares drop as earnings fall short after currency headwinds

Philips shares drop as earnings fall short after currency headwinds
Philips Healthcare headquarters is seen in Best, Netherlands August 30, 2018. REUTERS/Piroschka van de Wouw/File Photo   -   Copyright  STRINGER(Reuters)
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By Toby Sterling

AMSTERDAM (Reuters) – Dutch healthcare technology company Philips <PHG.AS> missed estimates for core profit in the third quarter on Monday, sending its shares to their lowest in more than six months.

The company, which makes products ranging from electric toothbrushes to medical imaging systems selling for millions of euros, cited “currency headwinds” for the shortfall, though some analysts said underlying growth was subpar.

Philips said core earnings rose 6.8 percent to 568 million euros (500.3 million pounds) from 532 million a year before. Analysts polled for Reuters had seen adjusted earnings before interest, taxes and amortisation (EBITA) at 590 million euros.

Shares, which had already slid 8 percent since early October, dropped another 6.3 percent to 32.55 euros in early trade, hitting their lowest since early April.

Philips CEO Frans van Houten blamed currency headwinds and said it was “quite an achievement” that comparable sales grew by 4 percent, compared to zero growth in the second quarter.

Analysts at Berenberg said the sales increase was “not quite the bounce-back in growth that the market was looking for,” adding in a note: “Overall, this was a softer than expected quarter and management commentary surrounding … ‘headwinds’ could spook the market.”

The analysts also noted softer trends in both growth and profitability in the group’s Personal Health and Connected Care and Health Informatics businesses, though they repeated a positive view on the shares and said investors should buy on weakness.

Analysts at ING, who also rate shares “buy”, said in a note that “organic growth was below expectations in all divisions.”

Philips said margins had improved and order intake was up 11 percent from a year ago, notably in China, which had seen weak growth in the second quarter.


“When you look at our order book growth of 11 percent, that’s actually pretty phenomenal because already for four quarters in a row we are growing in double digits, outpacing market growth,” Van Houten said.

The CEO said this boded well for a revenue increase next year, noting it takes about nine months for orders to show up in the company’s earnings.

Van Houten warned he was increasingly worried by the prospect of Britain leaving the European Union with no deal in place. If Brexit occurs without a Britain-EU customs union, that would force the company to “revisit our manufacturing footprint,” including its manufacturing plant in Glemsford, eastern England, he said.

The company’s EBITA margin improved by 0.4 percent to 13.2 percent of sales and Van Houten repeated a target of 4 to 6 percent average comparable sales growth over the 2017-2020 period.

Philips’ largest division, which makes medical imaging equipment such as ultrasound machines, saw comparable sales rise 6 percent to 1.75 billion euros, with growth skewed towards emerging markets and North America.

Comparable sales fell 2 percent to 741 million euros at its Connected Care or patient monitoring business, and rose 4 percent to 1.68 billion euros at its Personal Care business, which includes toothbrushes as well as sleep and breathing aid devices.

(Reporting by Toby Sterling; Editing by Sunil Nair and David Holmes)

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