Philips Declines as HSBC Cuts Estimates on ‘Many Challenges’

By Benedikt Kammel and Maaike Noordhuis - Sep 30, 2011 3:22 PM GMT+0700

Royal Philips Electronics NV declined as much as 5.6 percent in Amsterdam trading, the most in six week, after HSBC Holdings Plc (HSBA) cut its earnings estimates by 20 percent to 30 percent for the next two years and predicted “many challenges” for the Dutch electronics company.

The stock fell as much as 79 cents to 13.33 euros, and traded at 13.35 as of 10:21 a.m. Philips has fallen 42 percent so far this year, valuing the company at about 13.64 billion euros ($18.46 billion).

HSBC, in a report to investors today, said their sum-of- parts valuation of the stock is 12.5 euros, “suggesting we have not yet reached fundamental valuation ‘bedrock,’” analyst Colin Gibson wrote.

Gibson predicted restructuring costs of 450 million euros next year and 350 million euros the year after, and a loss of 300 million euros tied to the television operations, which Philips has agreed to exit. HSBC predicted revenue of 22.5 billion euros this year and a net loss of 330 million euros. The mean estimate of analysts surveyed by Bloomberg is for sales of 22.45 billion euros and a loss of about 471 million euros for 2011.

In lighting, where Philips is the global market leader, the company will “find it difficult to pass price pressure up the supply chain as it owns its own supply chain in this business,” HSBC wrote. The company’s presence in consumer markets makes it “more exposed to government austerity measures and to their impact on short-term growth in key European markets,” according to the report.

Philips itself aims to lift earnings before interest, taxes and amortization to 10 percent to 12 percent of sales by 2013, on sales growth of 4 percent to 6 percent.

“As a result of our efforts and despite economic challenges, we are confident that we can deliver our 2013 financial targets,” Chief Executive Officer Frans van Houten said September 13. Philips is aiming for an Ebita margin of 15 percent to 17 percent for its health-care subsidiary, while the goal for the lighting and consumer lifestyle divisions is 8 percent to 10 percent.

To contact the reporters on this story: Benedikt Kammel in Berlin at bkammel@bloomberg.net; Maaike Noordhuis in Amsterdam at mnoordhuis@bloomberg.net

To contact the editor responsible for this story: Benedikt Kammel at bkammel@bloomberg.net