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Philips Profit Misses Goals After Trade Tariffs Bite

Ellen Proper

(Bloomberg) -- Royal Philips NV dropped the most in over eight years after the Dutch provider of hospital equipment warned it will miss profit goals amid costs and supply-chain disruption from trade tariffs.

Shares of the Amsterdam-based company fell as much as 9.9% on Thursday. Margin improvement for 2019 will be a maximum 20 basis points, snapping three straight years of 100 basis-point improvements, the company said in a statement.

The issues threaten a push by Chief Executive Officer Frans van Houten to improve productivity, after he streamlined Philips to focus on health products. Van Houten pledged to step up efforts to improve the performance of the Connected Care business, which supplies wireless gear and monitors. The division’s broad product range meant taking a deep dive into numerous supply chains to make sure Philips paid the right duties, he added.

The Dutch maker of goods ranging from medical scanners to electric toothbrushes is shifting production to China and strengthening local supply chains as an antidote to the trade war with the U.S. Third-quarter profit missed estimates as Philips lowered production to reduce unsold inventory. It will also include a 78 million-euro ($86 million) goodwill impairment in Connected Care. Van Houten said it will take time for mitigating actions to start countering the increased headwinds.

Philips Rejigs Plants in China to Counter Fallout From Trade War

Behind Schedule

“Overall, we are behind on our original plan” for 15% profitability next year, said Van Houten.

Earnings before interest, taxes and amortization are expected to be about 583 million euros, with profitability of about 12.4% of sales, down from 13.2% a year earlier, Philips said. Analysts had estimated 628 million euros in profit, according to company-compiled estimates.

ING analyst Marc Hesselink predicted a low-to-mid-single digit decline in profit for the full year.

Shares of Philips, which was scheduled to report earnings on Oct. 28, closed down 8.8% in the Dutch capital. They’ve still advanced 23% this year, for a market value of about 35 billion euros.

(Corrects cause for impairment charge, removes CEO comment on 2020 margin goal which wasn’t mentioned. Updates share prices.)

To contact the reporter on this story: Ellen Proper in Amsterdam at eproper@bloomberg.net

To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Andrew Noël, Wout Vergauwen

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