(Reuters) — Royal Philips (NYSE:PHG) reported 1st-quarter earnings showing continued weakness in the healthcare equipment operations that are increasingly vital for the Dutch group as it prepares to spin off its lighting operations.
The maker of consumer goods like shavers, toothbrushes and coffee makers as well as healthcare equipment such as CT scanners and patient monitoring systems said operating profit in healthcare fell -84.4% to €17 million ($18 million) from €109 million in the same period in 2014.
Philips blamed the fall on a mix of restructuring charges and higher investment in the unit, which delivered 43% of group revenue in 2014 but suffered from a lengthy production shutdown in the U.S. last year.
The company said today that healthcare sales grew 1% in the 1st quarter of 2015, while order intake "showed low single-digit growth." CEO Frans Van Houten said U.S. production would only be back at full capacity toward the end of 2015.
“The U.S. economy is growing, but in the markets in which we participate, let’s say healthcare, we see a more flattish outlook," Van Houten told reporters.
He also said an "enormous slowdown" in the Chinese healthcare market was continuing, though those negatives were offset by improving order intake in western Europe, Africa and India.
Barclays analyst David Vos said U.S. market share lost to competitors GE (NYSE:GE) and Siemens (NYSE:SI) "will be costly to regain or could be lost altogether."
He said Barclays, which cut its rating on Philips to "underweight" from "equal weight", is also concerned the Chinese government has begun a concerted effort to push Philips and Siemens aside in favor of domestic competitors.
Philips shares, which had risen on Monday to their highest in more than a year, fell 3.4% by 0839 GMT. The stock has underperformed the Dutch AEX index of blue chips by about 10% over the past year.
Group earnings before interest, taxes and amortisation rose 7.6% to €327 million, in line with an average forecast of €324 million from analysts polled by Reuters.
Comparable sales rose 2% to €5.3 billion, thanks to growth in western Europe and some emerging markets.
Both the company’s lighting division and its consumer products division increased operating earnings and the company forecast a "modest" increase in company-wide comparable sales for the full year.
With Philips’ EBITA margin at 6.1% of sales in the quarter, Van Houten repeated a January warning that the EBITA margin in 2016 will be closer to 10% than the 11% Philips is targeting.
Philips is planning to sell its lighting division, the world’s largest lighting maker, via a stock market flotation in the 1st half of 2016.
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