Koninklijke Philips N.V (PHG) disclosed the recommencement of shipments of its Brilliance ICT systems from the Cleveland production facility, subsequent to an external certification of its management system. Notably, the move came after the resumption of production at the facility by the company, in fourth-quarter 2014.
However, owing to longer delay in ramping up production and shipment in the facility, Philips expects the impact on its full year EBITA to be higher than projected. The company now anticipates the event to have an impact of around EUR 225 million on 2014 EBITA, as opposed to EUR 180 million estimated earlier.
As a matter of fact, last year Philips temporarily halted production at its Cleveland facility, after a warning letter issued by the U.S. Food and Drug Administration following an inspection at the same. The facility deals in making computed tomography and nuclear medicine imaging equipment.
Along with the abovementioned disclosure, Philips declared the expectation for its fourth quarter 2014 EBITA performance. The company projects the fourth-quarter reported EBITA at about EUR 255 million, primarily affected by a rise of about EUR 200 million in legacy legal provision in IG&S and around EUR 290 million increase in restructuring and other incidental costs. On the other hand, Philips expects fourth-quarter adjusted EBITA to be roughly EUR 735 million. The figure includes the effect of Cleveland facility production delays, continued weakness in certain markets and emerging markets’ foreign exchange translation woes.
The Cleveland facility delays and consequent negative effect on EBITA is surely discouraging and hurt investor sentiments. In fact, the voluntary suspension of production at this facility has had a severe impact on the company’s third-quarter results. Moreover, Phillips has been struggling with weak operational performance for the past few quarters and facing issues like continued sluggishness in key markets and currency headwinds.
Nevertheless, Philips can gain from its strategies of providing innovative solutions and contributing towards advancement of the heath care system. Last month, the company received 510(k) clearance from the U.S.A. Food and Drug Administration (‘FDA’) for marketing its Avalon CL Fetal Monitoring solution across the nation (read more: Philips Gets FDA Nod for its New Fetal Monitoring Solution).
This Zacks Rank #4 (Sell) stock is slated to report its fourth quarter and full year 2014 results on Jan 27. Investors interested in the Electronic Products–Miscellaneous industry can have a look at better ranked stocks like GrafTech International Ltd. (GTI), Mistras Group, Inc. (MG) and VOXX International Corporation (VOXX). All stocks carry a Zacks Rank #2 (Buy).
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