Royal Philips (NYSE:PHG) said today that it plans to spin out its legacy lighting solutions business to focus on its $19.3 billion health and consumer products business.
Philips did not reveal the impact of the split, expected to cost about $64.3 million from 2014 to 2016, on its 113,000 employees. At last report, Philips Healthcare, which runs its U.S. operation out of Andover, Mass., employed about 37,150 people worldwide, down slightly from a year earlier, with restructuring over the past year offset to some degree by the addition of new employees in growth markets.
Philips’ $9.0 billion lighting business, the smallest of its 3 main units, posted 2nd-quarter earnings of $178 million on sales of $2.5 billion, down 4% drop from a year earlier. Philips Lighting was focused on LED systems to offset declines in conventional lighting products, including the incandescent bulbs that were its historic mainstay. Today Philips said it will keep its Lumileds LED and automotive lighting businesses as it considers "various options for alternative ownership structures with direct access to capital markets" for the business.
In July, CEO Frans van Houten overhauled the management of the Philips’ 3 divisions, eliminating a middle layer of management that included then-Philips Healthcare CEO Deborah DeSanzo in favor of the units reporting directly to van Houten.
“I do appreciate the magnitude of the decision we are taking, but the time is right to take the next strategic step for Philips, as we continue on our transformation,” van Houten said today in prepared remarks. “Philips is uniquely positioned to help reshape and optimize population health management by leveraging big data and delivering care across the health continuum, from healthy living and prevention to diagnosis, minimally invasive treatment, recovery and home care.”
In the 2nd quarter, Philips Healthcare contributed $2.9 billion in revenue to the $7.2 billion overall logged by Royal Philips, with healthcare sales down 10% from a year earlier in part due to a January suspension of manufacturing at a facility in Cleveland as part of an FDA inspection. Philips calculated healthcare earnings before interest, taxes, depreciation and amortization (EBITDA) and other, one-time charges at $290 million in the second quarter. In July, Philips indicated it would resume Cleveland shipments gradually over the course of the current 3rd quarter.
Today Philips said the problems at the Cleveland plant are expected to cost an additional $128.6 million during the 2nd half of the year and forecast adjusted and reported EBITA declines.
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