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Philips Sells DVD Business as Health Demand Boosts Profit


Royal Philips Electronics NV agreed to sell its DVD and music-player business as a revamp to focus on lighting and health-care products helped profit to beat analysts’ estimates.

Japan’s Funai Electric Co. will pay 150 million euros ($202 million) in cash and a license fee for the Lifestyle Entertainment unit, Amsterdam-based Philips said today. Fourth- quarter earnings before interest, taxes, amortization and one- time items rose 50 percent to 875 million euros. Analysts in a Bloomberg survey had estimated 866 million euros.

“Lifestyle entertainment has been an absolute underperformer in the consumer lifestyle business,” said Rabobank analyst Hans Slob, who has a “buy” rating on the stock. “It’s definitely positive news Van Houten is taking more steps to improve the margins, by divesting this low-margin business.”

Philips rose 0.5 percent to 22.05 euros in Amsterdam trading as of 9:13 a.m., valuing the company at 21 billion euros. The stock had gained 22 percent in 2012, while German rival Siemens AG rose 11 percent and General Electric Co. of the U.S. increased 17 percent.

Beard Trimmers

Philips’ consumer business has shrunk over the years as customers flock to competitors such as Sony Corp. or Apple Inc. for mobile communications and music devices. The company’s remaining consumer division will focus on health- and wellbeing products such as beard stylers and grooming kits, electronic toothbrushes, coffee machines and kitchen appliances.

The company is ahead of its own cost-savings plan as it lowered expenses by 471 million euros in 2012, Van Houten said in a Bloomberg TV interview today.

“We are most proud of the underlying profitability improvement. We are actually a little bit ahead of plan,” he said. “We continue to lower our overhead costs so that we can focus on what we’re good at.”

Price-Fixing Fine

The fourth-quarter net loss widened to 358 million euros from 162 million euros a year earlier, driven by restructuring costs and a 509 million-euro fine imposed by European Union antitrust regulators over price-fixing deals on now-obsolete cathode-ray tubes used in televisions and computer monitors.

Sales gained 6.7 percent to 7.16 billion euros. Health-care revenue rose 7.1 percent, while lighting sales surged 9.2 percent. Philips plans to pay a dividend of 75 cents per share.

“Philips’ fourth-quarter earnings are a solid step,” said William Mackie, an analyst at Berenberg Bank. “They show a progressive margin improvement with growth coming from healthcare and positive surprises with the lighting unit as consumer luminaires and lumileds were profitable in the quarter.”

Van Houten predicted today that sales in 2013 will “start slow and pick up in the second half” as the economic woes in Europe and the U.S. had an impact on Philips’ order book. He reiterated the company’s full-year targets.

Health-Care Orders

Philips competes with Siemens AG and General Electric Co. in health-care equipment such as medical scanners as well as in lighting. Siemens and GE posted quarterly results earlier this month that beat estimates, partly as a result of a rise in health-care orders with growth coming from emerging-markets such as China and stronger-than-expected orders in U.S.

For Philips’ health-care business, “orders in Europe were strong,” Van Houten said. The “U.S. showed some weakness” as the fiscal cliff and the debt ceiling made hospitals prudent.

Siemens CEO Peter Loescher said last week economic output in the euro zone will most probably decline again this year, while the economic recovery in the U.S. could pick up speed.

Siemens’ shareholders last week approved plans to spin off the underperforming Osram lighting unit into a standalone company. Osram posted a profit of 79 million euros in the fiscal first quarter, compared with 111 million last year.

Philips said in December that reorganization charges at its lighting unit in the fourth quarter will amount to 215 million euros, exceeding forecasts by 48 percent, as it merges North American sales units and eliminates warehouses in Europe.

The measures are part of a worldwide overhaul that includes reducing the workforce and closing factories in response to falling industrywide demand for conventional lamps and the rise of light-emitting diodes. The Dutch company will drop some U.S. brands targeted at corporate customers.

(Source: Bloomberg)