Philips’s New Management Achieves Surprising Turnaround

Philips Electronics reported better-than-expected quarterly results, buoyed by one-off gains and a stronger performance at its consumer and health care businesses, in the first signs of a long-awaited turnaround under new management.

But the Dutch group warned that the outlook for the rest of the year was still worrying given the weak economic environment, as fragile consumer spending and government budget cuts in its key markets have a direct impact on its three main businesses in consumer electronics, medical equipment, and lighting systems.

Chief executive Frans van Houten said “We remain cautious about the remainder of 2012 given the uncertainties in Europe, particularly in the health care and construction markets, and the slowing growth rate in the global economy”.

While noting the turnaround in the first quarter, van Houten flagged the need for further restructuring, and said Philips must do more to shake up its corporate culture -considered to be overly consensus-driven and cautious- in order to get its new products onto the market quicker.

He reiterated that results in 2012 would be impacted by restructuring charges and one-time investments, and so declined to give a full-year forecast.

However, the Dutch group stuck to its guidance for 2013 of 4-6 % sales growth, 10-12 % core profit and 12-14 % returns on invested capital, as Reuters stated.

Investors have been keen to see signs that management changes and restructuring measures are finally paying off now that Van Houten has been at the helm for a year.

Philips, which made a loss of €160 million ($211 million) in the fourth quarter of last year, reported first-quarter net profit jumped 80 % to €249 million as sales climbed 7 % to €5.608 billion. Operating profit, or earnings before interest, taxes and amortization (Ebita), was €552 million, up 26 %.

As Europe’s largest consumer electronics producer, the world’s biggest lighting maker, and a top-three maker of hospital equipment, Philips has blamed its poor performance in the past year on weak economic growth, fragile consumer spending and government budget cuts in several of its key markets.