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Philips warns profits hit by weak European market
Lighting maker Philips warns fourth quarter earnings hurt by weakness in European market
By The Associated Press

AMSTERDAM (AP) ' Royal Philips Electronics NV has warned that its fourth quarter profits were worse than expected due to a weak European market that made it difficult to charge customers as much as it wanted to for light bulbs.

Philips, the world's largest lighting maker, is due to report full earnings on Jan. 30.

The company said free cash flow would be euro1 billion ($1.28 billion) compared with euro1.2 billion a year ago. Sales grew by a "mid single digit" amount, but margins slipped, the company said.

Operating profits in the fourth quarter were around euro500 million at a margin of at least 7 percent of sales, Philips said. In the same period a year ago, operating profit was euro662 million at a margin of 9.1 percent.

Shares fell 6 percent to euro14.715 in early trading in Amsterdam.

"Our expected fourth quarter financial results have been affected by the weakness in Europe, which has impacted our health care business, as well as pricing in our consumer lighting business," said Chief Executive Frans van Houten in a statement.

"We have taken measures to address our inventory situation in the lighting business, which also had an impact on earnings for the quarter," Van Houten said.

Philips also competes with Siemens AG and General Electric Co. in the market for medical imaging equipment.

Van Houten said the company's consumer products division, Europe's largest maker of appliances such as coffee machines and electric shavers, was "beginning to show early signs of improvement" after cutting hundreds of jobs in 2011.

In July, Van Houten said the company did not expect a "material performance improvement" in the remainder of 2011, but did not say the performance might deteriorate. He introduced midterm targets of sales growth of around 5 percent and operating margins of around 11 percent of sales by 2013.

Though sales have grown since he assumed the CEO job last year, margins have fallen each quarter, making the midterm forecast appear difficult to achieve.

Analyst Victor Bareno of SNS Securities said Philips' margins were "clearly below our estimate of 11 percent" and said he was reconsidering his earnings estimates and 12-month price target for the company. SNS rates the shares a Hold.

"Results in health care and lighting are disappointing, especially as it is explained by difficult markets in Europe which are not likely to improve in the short term," he said in a note Tuesday.

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