By Maarten van Tartwijk
AMSTERDAM--Dutch Electronics Maker Koninklijke Philips NV warned
Tuesday that it has fallen behind its financial targets following a
number of setbacks that contributed to a 67% drop in fourth-quarter
net profit.
Philips said it was lagging its 2016 goals following a series of
operational difficulties, a slowing global economy and mounting
costs related to plans to split its business. The split hadn't been
decided when the targets were announced in 2013.
The Amsterdam-based company reported fourth-quarter net profit
of EUR134 million ($150.69 million) compared with EUR412 million in
the same period a year earlier. The bottom line was hit by EUR297
million in restructuring costs and EUR201 million in legal
bills.
Sales rose 2% to EUR6.5 billion because of currency gains but
decreased 2% on a comparable basis.
Philips shares fell 3.2% on Tuesday, making it the biggest
faller on the Amsterdam exchange.
The company, whose products range from shavers and coffee
machines to hospital scanners, announced in September it would
split itself into two companies and spin off its iconic lighting
business. It was the latest in a series of restructuring moves for
the Dutch conglomerate and came after consecutive profit warnings
and criticism that its cumbersome corporate structure is slowing it
down.
But the overhaul is taking its toll on Philips' financial
performance. Chief Executive Frans van Houten said it will lead to
up to EUR650 million in restructuring and separation costs in 2015,
much more than analysts had forecast. He also struck a cautious
note about the global economy, saying he expects "ongoing
volatility" in some key markets such as Russia and China.
Philips' financial targets were set in September 2013 and assume
comparable sales growth of 4% to 6% and a return on invested
capital of more than 14%. But in 2014, comparable sales declined by
1% to EUR21.4 billion, while the return on capital was only
3.9%.
"It feels bad to be behind on our targets," Mr. van Houten said.
"But I'm convinced we'll get back on the path of improvement.
Transforming Philips is a marathon, not a sprint."
Analysts said they were disappointed about the performance of
Philips' health care and lighting divisions.
The health care unit posted a 28% slide in earnings before
interest and taxes to EUR390 million, caused by a temporary
shutdown of a medical imaging plant in Cleveland, U.S. last
year.
The lighting division suffered an operating loss of EUR40
million because of weak sales of traditional light bulbs,
restructuring costs and impairment charges.
"It is a combination of weak end markets and poor execution that
are to blame for the poor results," said Kepler Cheuvreux analyst
Peter Olofsen. "It will probably take at least a couple more
quarters for these to
Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com
Access Investor Kit for Royal Philips NV
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=NL0000009538
Access Investor Kit for Royal Philips NV
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US5004723038
Subscribe to WSJ: http://online.wsj.com?mod=djnwires