Bright Spots in Philips’ 4Q


Philips delivered a fourth-quarter loss of EUR 0.39 per share, EUR 0.22 larger than the loss in the fourth quarter of 2011. The result this quarter, however, was driven largely by a EUR 313 million charge (EUR 0.96 per share) related to a fine levied against the firm by the European Commission stemming from the cathode ray tube business, which has been out of the portfolio for more than a decade. Given that the company expects to challenge the ruling and the smaller one-time impact of the charge.

Organic revenue improved 3% versus the prior-year period, with health care growing 4%, consumer lifestyle growing 2%, and lighting growing 4%. The consumer business was also able to translate the top-line growth into 220 basis points of operating margin expansion despite 120 basis points of headwinds created by incremental restructuring in the period. While health-care margins slid 10 basis points, restructuring costs in the period held back operating performance by 320 basis points.

The emergence of LED technology invites competition in lighting that has put pressure on the company’s profitability. While we acknowledge the long-term viability of LED, we expect lighting will continue to struggle for the foreseeable future. Philips announced the sale of the audio, video, multimedia, and accessories business to Funai for EUR 150 million, which is consistent with its strategy of moving away from consumer electronics and toward health and well-being assets. The deal is expected to close in the second half on 2013.


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