Royal Philips Electronics (PHG) posted revenues of €5.257 billion ($ 7.1 billion) for the first quarter of 2011 with earnings per share at €0.14 (19 cents).
Healthcare sales increased by 5% and were helped by robust performance at Patient Care and Clinical Informatics and Home Healthcare Solutions while Imaging Systems and Customer Services also showed single-digit growth. Consumer Lifestyle sales were in line with the year-ago quarter.
Double-digit growth in emerging markets was offset by declines in mature markets. Double –digit growth at Personal Care, Domestic Appliances and Health & Wellness was offset by lower revenue at Licenses, Accessories and Audio & Video Multimedia. Lighting comparable sales increased by 6%, with double-digit growth in emerging markets and single-digit growth in mature markets.
Improved business prospects in North America were offset by sales decline in Western Europe. Emerging markets saw an 11% comparable increase in sales. Brazil, the ASEAN countries, Russia and the Middle East were the main drivers of growth.
Earnings before Interest, Tax and Amortization (EBITA) were €58 million below that of the year-ago quarter due to lower earnings at Consumer Lifestyle and Lighting. This was partly offset by improved earnings at Healthcare and GM&S and €35 million lower restructuring charges.
The cash balance at the end of the quarter was €4.78 billion mainly because of €391 million cash outflow from operating activities and €224 million net capital expenditures.
Inventories as a percentage of sales were 15.7%, in line with the prior quarter. Inventory value was €3.5 billion.
At the end of the quarter, Philips had net cash of €437 million, which is a deterioration from the prior quarter.
The number of employees increased by 1,858 in 1Q11 due to increases in temporary headcount at Lighting.
The restructuring of the product portfolio of Philips to better position itself as a more focused company in the healthcare, lighting and lifestyle markets is moving ahead with several acquisitions and divestments. This bodes well for the company going forward.
The company announced the formation of a 30%/70% Joint Venture with TPV for hiving off the television business. Henceforth the results from the television business will be carved out and reported under discontinued operations in the consolidated statements of income and cash flows.
The company expects comparable sales growth in the first of half of 2011 to moderate towards the single-digit level, the normalization being driven by slow recovery in U.S. and Europe.
Philips is actively restructuring its portfolio to better focus on healthcare, lighting and lifestyle markets with several recently focused acquisitions and divestments, which bode well for the company going forward. In the second half of 2009, Philips acquired the assets of InnerCool Therapies Inc., a pioneer in the field of therapeutic hypothermia, a medical treatment that lowers a patient's body temperature.
The company’s continued ability to increase cash flow by higher earnings, partially offset by lower inflow from working capital, has helped to sustain investments in growth initiatives while maintaining a strong balance sheet.
However, Philips’ global presence exposes the company to regional and local regulatory rules, which may interfere with the realization of business opportunities and investments in the countries where it operates. Philips’ overall performance in the coming years depends on realizing its growth ambitions in the emerging markets. Sony Corporation (SNE) is a direct competitor.
Headquartered in Amsterdam, The Netherlands, Royal Philips Electronics N.V. is one of the world’s largest electronics companies. Philips Electronics currently holds a Zacks #4 Rank (short-term Sell recommendation) on the stock.
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