Philips attributes its outstanding Q2 earnings to cost-savings and strong sales

This Monday, Royal Philips (NYSE: PHG) announced that cost-savings and strong sales delivered a boost to second-quarter earnings as the Dutch firm seeks to reposition itself as medical technology company.

It was Philips’ first earnings report since the May IPO of its lighting division, in which it still owns a stake of roughly 70%. The company has shifted to selling health-care products and technology, which it believes offers better long-term growth prospects. It competes with corporate giants like Siemens AG and General Electric Co.

Adjusted earnings before interest, taxes and amortization were €544 million ($597 million), up 9% from the same period last year, beating market expectations.

Comparable sales, which are corrected for currency swings, rose 3% to €5.9 billion, while the adjusted Ebita margin rose to 9.3% from 8.4%.

Shares of Philips rose by 2.8% in Amsterdam, having gained 3.8% so far this year.

Philips said the health-care technology operations, made up of three divisions, and recorded a 5% rise in comparable sales in the quarter.

Growth was strongest at the consumer-oriented Personal Health unit, where comparable sales increased by 9%, driven by strong sales of electric toothbrushes and interactive sleep-therapy devices.

Order intake of medical-equipment like ultrasound scanners fell 1% in the quarter, which the company largely blamed on the lumpiness of its order book.

In an interview, Chief Executive Frans van Houten said the results provided fresh evidence that Philips’ strategy to contain costs and market innovations at a greater speed is paying off.

He said that he expects that the positive trends to continue and innovations in both the consumer and hospital segment could further boost sales and order intake in the remainder of the year.

“An example of a successful innovation is the OneBlade, a beard-styler that looks to tap into the popularity of facial hair,” Mr. van Houten said.

Mr. van Houten maintained his profit guidance for the year but expressed concerns of growing uncertainties caused by Britain’s vote to leave the European Union and the recent wave of terror attacks. He also described the coming U.S. presidential election as “a risk” that is being closely monitored.

“It looks like the election will become a tight race,” he said. “There are significant differences on policies [between the candidates] which could influence health-care, trade treaties and the wider U.S. economy,” he said, “any changes to U.S. health-care policies would have a significant impact on Philips. The Dutch company generates roughly one-third of sales in North America, making the region its most important market.”

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