By Niclas Mika

AMSTERDAM (Reuters) - Philips Electronics NV posted a quarterly core profit above analysts' average expectations on Monday but warned its key medical systems unit will likely miss targets, sending its shares sharply lower.

The shavers-to-light bulbs group said third-quarter earnings before interest, tax and amortization (EBITA) rose to 438 million euros ($622.6 million) from 71 million a year before, when results were hit by a 265 million euro charge for asbestos-related liabilities.

The result compared with an average forecast of 423 million euros in a Reuters poll of 15 analysts.

Philips's medical division, one of the world's top three hospital equipment makers, showed a core profit of 182 million euros, down from 192 million the year before and below the average analyst forecast of 228 million.

Chief Financial Officer Pierre-Jean Sivignon said the unit would likely not meet its 2007 targets due to a U.S. regulatory change which continued to affect the market for imaging systems and would likely cost the medical division up to 2 percentage points of expected sales growth.

"We still expect pretty good (revenue) growth at medical, but a bit shy of the 6 percent for the year," Sivignon said, adding the full-year EBITA margin would likely be up to 1 percentage point lower than the target of 14 to 15 percent.

The medical division competes with GE Healthcare , which on Friday posted a 1 percent profit decline, and Siemens Medical Solutions , and is key to Philips's strategy of becoming a more predictable, higher-margin company.

Philips shares were down 4.9 percent at 30.57 euros at 1212 GMT, underperforming the DJ Stoxx 50 European blue chip index which fell 0.1 percent. Siemens shares fell 2 percent.

SHAREHOLDER RETURNS

But Credit Suisse analysts said the prospect of increased shareholder returns -- Philips ended the quarter with 5.2 billion euros in cash -- would continue to support the shares.

Of 38 analysts tracked by Reuters Estimates, 28 rate Philips shares "buy" or "outperform." The average target price is 35.13 euros.

Sivignon reiterated the company's targets of group sales growth of 5 to 6 percent and an EBITA margin of at least 7.5 percent, helped by growth in emerging markets.

The domestic appliances unit DAP, which makes coffee machines, shavers and electric toothbrushes, beat even the highest forecast in a Reuters poll of 15 analysts with a core profit of 135 million euros, a 40 percent increase driven partly by cost cuts. It showed comparable sales growth of 20 percent.

"DAP was clearly very strong, but it's too small a division to really move the numbers," Dresdner Kleinwort analyst Robert Sanders said.

Looking ahead, Philips said it expected the U.S. healthcare market to be broadly flat compared with the previous year, but added it hoped to partly offset this with sales growth outside North America and the contribution from acquisitions.

Sivignon said it was unclear yet if the U.S. market weakness would extend into 2008.

Philips posted a net profit of 331 million euros, below an average analyst forecast of 356 million. The year-on-year comparison was distorted by a 4.2 billion euro gain in 2006 on the sale of Philips's semiconductor business.

Group sales were up 3.3 percent at 6.52 billion euros, compared with an average forecast of 6.37 billion.
© Copyright 2007 Reuters.

Photo:
Gerard Kleisterlee, president and CEO of Philips, speaks during the presentation of the 2006 full-year results in Amsterdam January 22, 2007. Philips posted a quarterly core profit above analysts' average expectations on Monday but warned its key medical systems unit will likely miss targets, sending its shares sharply lower. REUTERS/Paul Vreeker