AMSTERDAM: Royal Philips Electronics NV Chief Executive Officer Frans van Houten said he'll embark on a e2 billion ($2.8 billion) share buyback program, betting that a companywide overhaul will help the Dutch maker of light bulbs and electrical goods meet new goals for growth.
The maker of Sonicare toothbrushes plans to cut an additional e500 million in costs after reporting its biggest loss in almost a decade and predicting no improvement to its performance in the near term.
Philips shares were little changed in Amsterdam, where the company is based.
Van Houten said he's reviewing management layers and staffing as he looks to reduce the complexity of Philips. The savings will help improve efficiency at a time when Philips is battling with low-cost producers in Asia.
"The share buyback is a positive surprise, especially the timing of it, and the new targets look achievable", said Peter Olofsen, an Amsterdam-based analyst at Kepler Capital Markets.
Philips shares have declined more than 20 percent since Van Houten's arrival, paring the company's market value to 17.9 billion euros.
Siemens AG (SIE), which competes with Philips in lighting and healthcare equipment, is little changed in Frankfurt this year.
New Targets
Today's strategic update reflectsvan Houten's determination to accelerate a turnaround of the company after completing his first 100 days at the helm.
Analysts had expected new targets, which replace ones set in September, to be released at the third-quarter results' stage in the fall. The company halted buybacks in January 2009 in a bid to preserve cash.
"The new targets look realistic and are in line with our estimates for 2013, said Victor Bareno, an Amsterdam-based analyst at SNS Securities. He changed his recommendation to hold from reduce.
Philips, which announced e1.6 billion in writedowns, reported second-quarter earnings before interest, taxes and amortization of e370 million, a two-year low, down from e506 million. Analysts in a survey predicted e304 million.
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