Skip to main content

The Globe and Mail

Philips’ valuation offers room for growth

From "passionate pink" vacuum cleaners to sun-inspired wake-up lamps, appliance companies are pulling out the design stops to keep recession-wary consumers engaged. At the same time, cost-saving plans are being accelerated. The result of these efforts is encouraging, as earnings from Sweden's Electrolux and Amsterdam-based Philips showed on Monday. Both squeezed out underlying third-quarter sales growth of 5 per cent as margins edged up, year-on-year.

For Philips, though, the strongest revenue performance – and the reason why third-quarter sales beat consensus expectations by 4 per cent – came in the health care division. Here, sales rose 7 per cent year-on-year with orders growing 6 per cent. By contrast, its consumer lifestyle business – coffee-makers to shavers – registered a duller 3-per-cent sales advance, with a 7-per-cent decline in Western Europe offset by stronger advances in emerging markets and some growth in North America.

By contrast, sales at Electrolux, with less diversification outside appliances, were merely in line with consensus forecasts at 27 billion Swedish kroner ($4-billion). But Europe was weaker than expected, and predictions by chief executive officer Keith McLoughlin that Electrolux's biggest single sales region would get worse before it got better, did nothing to help the shares.

Story continues below advertisement

From an investment perspective, there has been no contest between these companies recently. Electrolux has easily outperformed Philips (and the European capital goods sector) over the past five years. Even on a one-year view, it has notched up a 70-per-cent total return, against Philips' 35 per cent.

But today, Philips trades on an enterprise value to 2013 earnings before interest, tax, depreciation and amortization ratio of below six times; Electrolux's is slightly above that figure. Near term at least, shares in the Dutch group may have more scope to advance.

Report an error
Comments

The Globe invites you to share your views. Please stay on topic and be respectful to everyone. For more information on our commenting policies and how our community-based moderation works, please read our Community Guidelines and our Terms and Conditions.

We’ve made some technical updates to our commenting software. If you are experiencing any issues posting comments, simply log out and log back in.

Discussion loading… ✨

Combined Shape Created with Sketch.

Combined Shape Created with Sketch.

Thank you!

You are now subscribed to the newsletter at

You can unsubscribe from this newsletter or Globe promotions at any time by clicking the link at the bottom of the newsletter, or by emailing us at privacy@globeandmail.com.