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Philips pins recovery hopes on holiday sales

Philips Electronics said it had still not seen a recovery in most of its markets and the Thanksgiving and Christmas holidays would be a key test of whether shoppers' confidence has returned.

Philips, Europe's biggest consumer electronics producer, posted better than expected third-quarter results on Monday as the benefits of cost-cutting took effect and revenue fell less than feared, boosting its share price to a one-year high.

But the company's outlook was cautious, echoing comments made by competitors General Electric and Siemens that an underlying recovery had not yet begun.

“The proof in the pudding will be the selling season,"” Chief Financial Officer Pierre-Jean Sivignon told reporters. “This is the moment that we can actually see if consumers are there,” he said, adding that the moment of truth would be the Thanksgiving holiday in the US in November and Christmas the following month.

Philips, which is also the world's biggest lighting maker and in the top three for hospital equipment, makes products ranging from MP3 players and digital photo frames to kettles, toasters and shavers.

“We remain cautious about the short-term outlook in the absence of structural recovery in the majority of our end-markets,” Sivignon said.

Hopes that recession-hit consumers will soon start spending again are high after European August retail sales were not as bad as expected and US September retail sales rose for the first time in more than a year.

Economists however say the jury is still out as there is continuing pain in the labor market, which will affect consumer spending.

Employment normally doesn't rebound until well after the recession ends, but is key for consumer spending and debt repayment to recover, healing the economy and the banks.

 

Shares hit new high

 

Philips' third-quarter earnings before interest, tax and amortization (EBITA) jumped to €344 million ($507 million) from €57 million in the same quarter last year, beating the average forecast of €109 million given in a Reuters poll of analysts as the effects of cost cutting kicked in.

Sales fell a comparable 11% on a year ago to €5.6 billion, not as bad as expected, analysts said.

Scott Babka at Morgan Stanley research said all three divisions posted better organic growth than expected quarter-on-quarter. “The top-line outperformance largely reflects a sequential improvement in emerging market sales, roughly one-third of total Philips sales,” he said.

EBITA at the consumer lifestyle unit rose to €129 million from 63 million last year, beating analysts' average expectations of €38 million.

Philips is in the process of cutting 6,000 jobs this year to cope with the recession and said all measures were in place to realize annual cost savings of more than €600 million next year.

Since the third quarter of last year Philips has cut the number of employees by 9,786, mainly at its healthcare and lighting units.

Sivignon said he did not exclude additional job cuts in both units next year, while most of the steps at the consumer lifestyle division had been taken. (Reuters)