Philips Lighting sees brighter 2017
EINDHOVEN, NETHERLANDS — Philips Lighting, the world’s biggest lighting maker, reported lower-than-expected fourthquarter earnings on Monday, reinforcing fears that it won’t be able to grow new product lines as fast as older ones decline and margins erode.
The subsidiary, floated by Philips in May, is in a race to grow its LED and Professional Lighting businesses faster than its traditional, but highly profitable, bulb business shrinks.
In the fourth quarter, it posted a startling 21% fall in sales at its Lamps arm, its largest division. The bulbs it makes are being driven out by energy-saving, longer lasting LED lights.
That undercut several positive trends, including company promises to return cash to shareholders, led by Philips which retains a 71.23% stake.
Group sales fell by more than 5%, sending the shares down 1.5% by 1136 GMT.
“There is one big negative in this update: The much stronger revenue decline in Conventional Lamps,” analysts for ABN Amro said in a note. However “in our view this should be outweighed by the improving margins guidance, strong free and cash returns.”
Philips CEO Eric Rondolat pledged to increase sales and margins in 2017.
“We are remaining cautious, but we believe in our capacity and we are confident that we will be starting to go back to growth, and probably in the later part of this year,” CEO Eric Rondolat told reporters.
PRICE EROSION
Rondolat said price erosion in the LED segment would ease this year. He said the company’s margins should improve by up to one percentage point in 2017 over 2016 levels of 9.1%, and to 11%-13% “in the medium term.”
Earnings before interest, taxes, appreciation and amortization (EBITA) for the quarter rose to €188 million ($202 million) from €159 million a year earlier.
Analysts polled for Reuters had expected adjusted EBITA of €193 million.
Both Philips LED and traditional businesses improved margins as the company cut purchasing and procurement costs.
CEO Rondolat said in an interview with Reuters further margin improvements in 2017 would come primarily from its Professional Lighting division, which was hit by write- downs on bad debt in Saudi Arabia in 2016. The company proposed a cash dividend of €1.10 per share, a pay-out ratio of 52%, beating analysts’ expectations.
It will also buy back up to €300 million worth of shares from Philips in 2017-2018.
Philips raised €750 million from the sale of a 25% stake in the initial float of Philips Lighting last May, when it said it planned to sell the rest of its holding within two years.
The company’s retail lighting division, Philips Home, posted a loss before interest, taxes, and amortization of €46 million for 2016. Rondolat said he expects the division to be profitable at the EBITA level in 2017. —