January 27, 2015 / 7:03 AM / 6 years ago

UPDATE 2-Philips lags behind its profit targets as earnings slide

* Restructuring costs of up to 400 million euros

* Lagging 2016 sales, earnings targets by 1 percent

* Lighting falls to operating loss, sales down 3 pct

* CEO Van Houten to seek reappointment (Adds CEO quotes, analyst comment, share price)

By Toby Sterling

AMSTERDAM, Jan 27 (Reuters) - Philips, the Dutch healthcare and lighting company, on Tuesday reported a big drop in fourth-quarter profits and said it was unlikely to hit its financial targets for the next two years.

The company, which began life making light bulbs, is preparing to split off its lighting business to expand its higher-margin healthcare and consumer arms. The group said it expected up to 400 million euros ($449 million) in costs this year from the shake-up, more than analysts had expected.

Philips’ fourth quarter net profit fell to 134 million euros ($150.6 million), from 412 million euros, mostly due to the costs of closing a medical equipment manufacturing plant in Cleveland, Ohio. The company had flagged this in a profit warning on Jan. 13.

Chief Executive Frans van Houten described the 2014 performance as a setback but that Philips would overcome the problems in Cleveland, price erosion in lighting and slower-than-expected global growth.

“I didn’t know Russia would collapse, or China would be significantly slowing,” he said on a call with journalists. Van Houten will seek reappointment when his term expires in March.

Philips’ shares fell as much as 5 percent in early trading and were one of the biggest fallers in the FTSEurofirst 300 index of pan-European shares. Philips shares have fallen 2 percent in the past year, compared to a 17 percent rise of the benchmark index of Dutch shares.

The company had originally aimed for sales growth of 4-6 percent between 2014-2016 and a margin on core earnings (EBITA) of 11-12 percent by 2016. It said it was lagging those goals by 1 percent.

Philips said sales growth and margins would improve in 2015, but Van Houten conceded the previous goals were not likely to be achieved.

Sales in the fourth quarter rose 2.2 percent to 6.54 billion euros.

Analyst Robin van den Broek from ING said in a research note restructuring costs of 250 million euros plus the separation costs of 300-400 million euros were well above his estimate of 250 million combined.

“The company is tracking 1 percentage point behind 2016 targets which in our view will be taken as a negative,” he said. He repeated a “buy” rating on shares, with a 12 month target price of 28 euros.

Philips said the Ohio plant problems that cost 225 million euros in 2014, had been resolved, but it would take much of 2015 to restore full capacity.

The healthcare arm, which makes hospital scanners, had fourth-quarter operating profit of 351 million euros, down from 477 million a year earlier, mainly to due to the plant shutdown.

Lighting sales fell 3 percent year-on-year, as a 14 percent fall in sales of traditional incandescent bulbs outweighed a 20 percent increase sales of in high-margin LED lights. ($1 = 0.8909 euros) (Reporting By Toby Sterling; Editing by Gopakumar Warrier, Anthony Deutsch and Jane Merriman)

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