Royal Philips (NYSE:PHG) said it is optimistic it will see its Cleveland plant turn a profit this year, despite seeing losses increase during the 1st quarter.
The company saw losses grow at the plant due to continued effort to fix quality control problems that pushed it to stop manufacturing at the plant in early 2014. The company has slowly ramped up service at the plant since then.
The plant lost $4.6 million in the 1st quarter this year, while clocking in $1.1 million in losses during the 4th quarter last year and $6.9 million total through 2015, according to Crain’s Cleveland Business.
But Philips is hopeful that its improvements at the plant will pay off, expecting to add $113.8 million to the adjusted EBITA during the 2nd half of 2016 and $85.4 million in 2017 from increased production.
“Since last quarter, we have brought 1 more product line into production, and now we have one more product line that needs to be put back in production more in Cleveland. All in all, there’s still remediation work to be done in Cleveland explaining the associated elevated remediation spend that we will incur well into the second half of the year. As a result of all this, we continue to expect that the improvements will contribute around €100 million to the adjusted EBITA in the second half of 2016 and €75 million in 2017,” CEO Franx van Houten said during an earnings conference call according to Seeking Alpha.
The company said it expects quality-control related costs to stay higher than normal through the 2nd half of the year, as the remediation process for the facilities has taken longer than expected.
“We started out by remediating Cleveland factory itself in 2014 and 2015. And then we have extended the efforts to include our supplier base in supporting our suppliers with the right measures is a, you could say, a hand-holding effort that takes a considerable investment. And we are partly also transitioning the supplier base towards alternative suppliers. So all of that is proven to be a quite a bit of a project,” van Houten said during an earnings call. “We do see light at the end of the tunnel. We’re very pleased with how the manufacturing is going. Production levels are back to normal. We have just introduced another product line that was still outstanding. There is now only one small product line to go. We have started to ship our IQon Spectral CT in several countries. So all in all, I say we are having the situation well in hand, albeit with cost levels that are higher than originally planned. But I intend to do this well, and so a bit extra cost is an acceptable” price to pay. And then we expected the second half of the year to show stronger bottom-line results.”
