Koninklijke Philips Electronics NV ADR Earnings Call Insights: European Healthcare Market and U.S. Order Prospectives

Koninklijke Philips Electronics NV (NYSE:PHG) recently reported its first quarter earnings and discussed the following topics in its earnings conference call.

European Healthcare Market

Andreas Willi – JPMorgan Cazenove: The first I have is on Healthcare. You had a weaker start of the year as you said, but you’re still quite positive on the year retreating kind of the top line outlook there. Has Europe become weaker than you expected a few moments ago and kind of in terms of backlog and visibility, how confident are you that you can deliver 3%, 4% sales growth for the year, after the weaker Q1? The second question I have is, if you could just give an update on stranded cost guidance and GM&S spending level for the year after Q1, whether anything changes here?

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Frans van Houten – CEO: Let me take the first question on Healthcare and then Ron will follow-up on the stranded cost question. You’ll recall that in Europe in the second half of last year we actually saw strong order intake with some lumpier orders and with somewhat longer horizon. That gives us absolutely confidence about our resilience in the European market, whereas the overall market is somewhat challenged due to the economy. We believe that in Europe we will see – in the northern part of Europe we will see some more traction going forward, whereas the southern part of Europe will continue to be weak. In the United States, we characterize the markets primarily through – that we see postponement of orders, postponement caused by the uncertainty around the health care reform, it’s good to note that on the government side orders have started to resume while that was very weak in 2012. So it is a mixed picture but we are convinced that the demand for technology such as from us, for example, in minimally invasive treatment, in patient monitoring, in hospital to home are all categories that will be in stronger demand once the dust settles on the U.S. health care reform. Ron, with regard to the stranded cost?

Ron Wirahadiraksa – EVP and CFO, Royal Philips Electronics: Yes, our stranded cost for the quarter in Q1, there were EUR25 million of stranded cost and that was in Lifestyle EUR7 million and in IG&S EUR18 million and it was all for Lifestyle Entertainment, so no stranded cost for TV any more. For the full year, the same as the guidance I gave at Capital Markets Day. EUR29 million for the full year in Lifestyle and EUR56 million in IG&S. I hope this answer the question, Andreas.

Andreas Willi – JPMorgan Cazenove: Yeah, the overall IG&S guidance is still the same for total cost?

Ron Wirahadiraksa – EVP and CFO, Royal Philips Electronics: Yes, EUR330 million.

U.S. Order Prospectives

Martin Wilkie – Deutsche Bank: Just clarifying on that Healthcare point. You talked about the uncertainty in the U.S. Do you think the Q1 from an order prospective in the U.S. is the low point? Or do you think that there’s still because of sequestration and other points, that that uncertainty continues into Q2? So just to get sort of some sense as to where you think we are in that order cycle? Then if I could, just have a question on Lighting as well. You talked about some benefit from (phosphor) tailwinds in Lighting. In terms of the phasing we can expect from that throughout the year and do you expect a similar benefit from that in both Q2 and Q3?

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Frans van Houten – CEO: I will take the healthcare one and Ron will follow-up on the bill of material benefits on the phosphor. On Healthcare, we said slow start of the year and that includes the second quarter. In other words, we are also cautious about the second quarter and really only expect a pickup in the second half of the year. Ron, the second point.

Ron Wirahadiraksa – EVP and CFO, Royal Philips Electronics: Yes. I said last year we would have benefits in Q1 from the phosphor related material price decreases. As we also said we haven’t been able to hang to all of them, but the net balance was a positive and that contributed a better bill of material and the rest of the improvement come from overhead cost reductions. In bill of material, we expect throughout the year, something similar than that we have seen in the first quarter of phosphor impact.

A Closer Look: Koninklijke Philips Earnings Cheat Sheet>>