PHILIPS ELECTRONICS has warned of soft fourth-quarter profits due to weak European consumer markets that is leading to charges for inventory it cannot shift.

Europe’s biggest consumer electronics maker said it will report a fall in underlying fourth quarter earnings to about €500 million from €910 million a year earlier.

The earnings report, due at the end of January, would also show slowing sales growth across its biggest divisions and unspecified charges for products that are still sitting in its warehouses.

“Our expected fourth-quarter financial results have been affected by the weakness in Europe, which has impacted our healthcare business, as well as pricing in our consumer lighting business,” said chief executive Frans van Houten.

Government austerity programmes in Europe are squeezing hospital budgets and some have put orders for the latest equipment on hold. Petercam analyst Marcel Achterberg said the excess inventory problem the lighting business is facing indicates consumer spending is indeed slowing down in Europe.

The shares were hit hard by the profit warning, retreating 4.73 per cent to €14.91 at the close.

The latest warning follows a prediction in June of sharply lower profits at the lighting division, its biggest alongside healthcare equipment, due to weak consumer demand in Europe and problems caused by crisis-hit construction markets. That was just a few months after Mr Van Houten took the helm.

Philips said overall sales growth in the fourth quarter will probably come in at less than 5 per cent and the underlying profit margin is now expected to be 8-9 per cent, below an estimate from SNS Securities analysts of 11 per cent and down from the 11.4 per cent the firm reported a year earlier.

“Results in Healthcare and Lighting are disappointing, especially as it is explained by difficult markets in Europe which are not likely to improve in the near term,” said SNS analyst Victor Bareno.

Despite a strong performance in the US, the healthcare division will report fourth-quarter sales growth in the low single digits, primarily due to weak sales in Europe and delivery delays. – (Reuters)