Philips Electronics warned of sharply lower profits at its lighting division and toasters-to-shavers consumer business, because of weak demand in Europe.
The profit warning, which wiped more than 12 percent off the shares, caps a string of disappointments from Philips and suggests consumer demand in Europe is likely to remain fragile against a backdrop of economic uncertainty, particularly in the peripheral euro zone countries.
The Dutch group — which ranks as the world's biggest lighting maker, Europe's largest consumer electronics producer, and a top three maker of hospital equipment — said it would cut costs as part of its wider restructuring.
Philips has struggled to compete with lower-cost Asian makers of consumer electronics goods, while tepid consumer confidence and economic growth in Europe and the United States have hit demand for products ranging from televisions to electric toothbrushes, as well as its street and home lighting systems.
Philips' profit warning "shows that consumers in mature markets are in dire straits," said Sjoerd Ummels, an analyst at ING who covers Philips.
"High unemployment, low real wage growth, and low consumer confidence has dented sales performance. This is a very trying time for companies who are geared to mature-market consumers."
Further evidence of weak consumer demand came from Kesa, Europe's third-biggest electrical retailer, which earlier on Wednesday said it was considering the sale of its loss-making Comet chain in the UK after trade across the group worsened in its new financial year.
UK consumer electronics sales have been hit hard as shoppers cut back on discretionary purchases in the face of rising prices and government austerity measures. Kesa said that sales of televisions had proved particularly poor.
For many years, Philips was considered a leading innovator in the field of design — its wake-up lights are a staple of many a Dutch household in the winter months — but is now under intense pressure to shake up its myriad business lines and improve profitability.
Philips shares underperformed the STOXX Europe 600 Personal & Household Goods index in the past 12 months, falling 39 percent versus a 7 percent rise of the index.
Restructuring expert Frans van Houten, who took over as chief executive in April, has promised a review of all the businesses and a dramatic overhaul to lift profit growth.
Van Houten moved quickly to hive off the group's loss-making TV business to a 30/70 joint venture with Hong-Kong based monitor maker TPV, with the option to sell out.
Several senior Philips executives have quit in recent months, since Van Houten joined as chief executive-in-waiting.
Philips said on Wednesday its lighting division, whose products include energy-saving lamps used in the Paris Eiffel Tower, would report "low single-digit comparable sales growth" in the second quarter because of weak consumer demand and the stagnant construction markets in Europe.
It said second-quarter earnings before interest, tax and amortization (EBITA) for the lighting division would be about 85 million euros ($122.26 billion) — down 60 percent from the year-ago figure of 210 million euros.
The consumer electronics division will show a "low single-digit" sales decline in the April-to-June period, and EBITA of about 50 million euros — a drop of 71 percent from the year-ago figure of 173 million euros.
"The fact that Philips reports such a massive shortfall in profits just before the end of the quarter is a blow to the company's credibility and we expect the market to take skeptical view on the upcoming update of the financial goals next October," said SNS Securities analyst Victor Bareno in a research note.
"We have to cut our estimates and we put our price target and buy recommendation under review with negative implication," he added.
The Dutch group competes with General Electric and Siemens in the hospital and lighting markets and with Samsung and LG Electronics among others in consumer electronics. Philips currently trades at 10.1 times 2011 earnings per share, comparing to 10.6 for Swedish home appliances maker Electrolux and 11.5 for German engineering conglomerate and lighting rival Siemens.
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