PC Panasonic Corp.

Royal Philips Electronics (PHG) posted a net income of €76 million ($106.9 million) in the third quarter of fiscal 2011. This was lower by €448 million compared to the prior-year period. The significant decline in the net income year over year was attributable to lower earnings, lower financial income and a higher loss from discontinued operations.

The company reported earnings of 21 cents a share which was way below the Zacks Consensus Estimate of 61 cents a share.

Quarterly Details

For the second quarter of fiscal 2011, the company posted a revenue decline of 1.2% to €5.3 ($7.5 billion) compared to €5.4 billion in the prior-year quarter. The top line was primarily impacted by a 6% currency translation impact.

Earnings before Interest, Tax and Amortization (EBITA) declined €279 million ($392 million) year-over-year to €647 million. The decline was primarily attributable to lower earnings at Lightening, GM&S (Group Management & Services) and Consumer Lifestyle.

Segment Details

The Healthcare segment was the biggest contributor in terms of sales. The segment posted revenue growth of 7%. Growth was particularly observed in Patient Care and Clinical Informatics, while the other businesses posted strong single-digit growth.

Consumer Lifestyle segment sales improved 1% year-over-year driven by growth in health and wellness, Personal Care and Domestic Appliances which was almost fully offset by sales decline at Lifestyle Entertainment and lower revenues from licenses.

The Lighting segment posted revenue growth of 8% during the quarter driven by double-digit growth at Professional Luminaries and Lamps, while LED sales grew 32%. 

Geographical Growth

On a geographical basis, comparable sales in the growth geographies increased 13% in the third quarter. However, sales at the mature geographies grew 2% year over year driven by lightening and Healthcare.

The company’s growth markets include all markets excluding the U.S, Canada, Western Europe, Australia, New Zealand, South Korea, and Japan. Sales from the growth geographies increased to 13% during the reported quarter. The above mentioned geographies are classified as mature markets which posted comparable sales growth of 2% in the quarter.

Cash and Balance Sheet

Net cash flow from operating activities declined significantly to €53 million ($74.5 million) compared to €168 million in the comparable prior-year quarter. The decline was attributable to higher working capital outflow primarily related to higher vendor payments.

Capital expenditures for the quarter increased €26 million ($37 million) to €225 million ($316 million) driven by higher investments in the Lighting and Consumer Lifestyle segments.

At the end of the second quarter, the company had a debt position of €1,189 million ($1,673 million) compared to €80 million in the prior-year quarter. The increase was primarily attributable to lower free cash flow and cash outflows related to share buy-back program.

During the quarter, has completed 24% of the €2 billion share buy back program.

Accelerate

During the second quarter of 2011, the company implemented a comprehensive performance improvement and change program called Accelerate to realize the value potential and speed up growth.

In the third quarter, the company has announced €800 million cost reduction program and expects to start reaping benefits from the fourth quarter itself. In addition, the company has also introduced structural changes in the reward system and has introduced new set of behaviors and training programs to drive culture change.  

Outlook

The company reiterates its outlook for fiscal 2013. Management at Phillips has announced mid-term performance goals which include sales growth of 4%-6%. The company expected reported EBITA margins of 10% to 12% as a whole, and segment wise 15% to 17% for healthcare, 8% to 10% for Consumer Lifestyle and 8% to 10% for Lighting. Phillips expects return on invested capital of 12% to 14%.

Phillips primarily competes with Panasonic Corporation (PC) and Sony Corporation (SNE) and currently holds Zacks #4 Rank, which implies a short term Sell recommendation.

 
PANASONIC CORP (PC): Free Stock Analysis Report
 
KONINKLIJKE PHL (PHG): Free Stock Analysis Report
 
SONY CORP ADR (SNE): Free Stock Analysis Report
 
Zacks Investment Research