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Lighting company Signify hit by economic gloom

By Bart H. Meijer
FILE PHOTO: Signify logo is pictured at the headquarters in Eindhoven

By Bart H. Meijer

AMSTERDAM (Reuters) - Signify reported a bigger than expected drop in second quarter sales on Friday as the world's biggest lighting company became the latest business to suffer from slowing economies and subdued consumer spending, particularly in Europe.

Shares in the company previously known as Philips Lighting fell as much as 6.6% in early trading.

Comparable sales dropped 6% to 1.48 billion euros ($1.65 billion), missing analysts' average forecast of 1.51 billion euros, as demand for LED lamps in Europe waned and the long-term decline in traditional incandescent lamp sales continued.

Core profit improved 2% to 133 million euros, but also missed analysts' expectations.

Signify said market conditions remained challenging, as it reported a 2% decline of sales for what it sees as its growth engines: LED, professional and networked home lighting business lines.

It kept its target for 2-5% growth for these activities for 2019, as it blamed a large part of the second-quarter decline on one-time events, such as elections in India, which temporarily halted public investments in lighting projects.

Jefferies analysts, however, said the 2019 targets looked "challenging".

"Signify is the latest victim of slowing macro conditions with numerous references to weakness in Europe, the Middle East, India and weak consumer LED demand in the U.S.", they wrote in a note.

Signify shares were down 5.9% at 25.39 euros at 0830 GMT.


ACQUISITION COULD HELP

"The drop in comparable sales in the second quarter was bigger than we had expected", Chief Executive Eric Rondolat told reporters.

"But some of the non-recurring effects of the second quarter can actually favour us in terms of sales in the coming months."

Growth could also be helped by the acquisition of a 51% stake in China's Klite Lighting, announced on Friday without financial details.

Klite has supplied Signify with LED lamps and luminaries for years and also generated around 250 million euros in sales to other light makers last year, Signify said.

"The acquisition announced today could save the day for the guidance", ING analyst Marc Hesselink said.

"Klite had margins and growth rates above Signify so the acquisition should help to reach Signify’s ambitious targets."

Signify also reiterated its margin target on earnings before interest tax and amortisation (EBITA) of at least 11% by the end of this year. It came in at 9% in the second quarter, up from 8.4% a year ago.


(Reporting by Bart Meijer; Editing by Sherry Jacob-Phillips and Mark Potter)