Highlights From Q1 2006 Results for Royal Philips

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April 18, 2006 | SIN Picks | | Author Asif

Royal Philips Electronics (PHG) reported “exceptionally strong” first quarter 2006 results led by revenue gains in the lighting division and consumer electronics. During the conference call an analyst Didier Scemama from the global banking group ABN AMRO remarked “I think in the last six or seven years covering Philips, I’ve never seen a year over year growth rate of that strength across the business.” The company remains focused on organic growth while not ruling out further acquisitions to fuel additional growth.

Positives:

  • A 37% jump in earnings to 160 million euros when compared to 117 million euros in the year-ago period.
  • Overall growth for this quarter was 10%, which supports their average annual target of 5-6% growth.
  • The EBIT (Earnings before Income and Taxes) margin improved from 3.2% to 4.5%. Philips hopes to improve its operating profit margin to 7-10% by 2007.
  • The growth rate in Consumer Electronics was very high at 16%, driven primarily by sales of flat screen TVs.
  • Growth was evenly spread across various geographical locations with strong growth in Latin America, solid growth in Europe and Asia doing well.
  • A 1.5 billion euro share buyback program that Philips initiated in August 2005 is now complete and in the next two months these shares will be cancelled. They represent 6% of the total outstanding shares.

Negatives:

  • While growth in the overall lighting division was 8%, revenue growth at the Lumileds lighting division was 25%. While such a high growth rate would be considered excellent and is inline with the forecast Philips issued when it acquired the remaining stake in Lumileds, I was expecting a higher growth rate as mentioned in the March 2006 edition of SINLetter.
  • Growth in the Medical Systems division was only 8%.
  • Inventory increased marginally from 12% to 12.3%.
  • Even with better than expected revenue growth of 10% in the first quarter, the company stuck with its full year growth forecast of 5-6% and did not increase guidance. This could either imply that the growth in the next three quarters would be more measured or that the company would like to try and deliver better than expected results in future quarters.

I continue to like the prospects for Philips as a long-term investment and personally started a position in Philips today. If you are interested and have the time, you can check out the entire conference call transcript at SeekingAlpha.com.




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