Philips reported a bigger-than-expected fall in quarterly operating profit and warned of a challenging 2014 owing to unfavorable exchange rates and slowing demand for medical equipment in China and Russia.

The Dutch healthcare, lighting and consumer appliances group said on Tuesday that earnings before interest, tax and amortization (EBITA) dropped 22 percent to 314 million euros ($433.4 million) in the first quarter through the end of March, missing consensus for 341 million euros in a Reuters poll.

"Our first-quarter financial results reflect a challenging start to the year," CEO Frans van Houten said in a statement, adding he remained confident that Philips would meet medium-term 2016 financial targets.

Like other European companies, Philips' earnings have been hurt by the euro's strength against other currencies, especially the Russian ruble and Argentina's peso.

Analysts acknowledged currency fluctuations have affected many companies, but pointed out that Philips had badly missed their expectations for higher underlying growth of 3.4 percent.

"There was no organic growth. It was zero and that's difficult," said one analyst who asked not to be named.

"It's everything. It's the currency [and] not growing in Europe or North America - the big core markets - and China was weaker."

Philips has reinvented itself since van Houten took over as CEO in April 2011. It has cut costs, sold weak businesses and targeted new growth segments, sending its shares up more than 80 percent in the past two years.

But group sales declined by 4.5 percent in the first quarter, weighed down by slowing demand from China and Russia and currency effects - unfavorable exchange rates alone shaved 5 percentage points off quarterly sales.

Philips is still targeting a 2014 to 2016 EBITA margin of 11 to 12 percent, return on invested capital of at least 14 percent and sales growth of 4 to 6 percent, though it has warned that this year would see only a modest step toward achieving those goals.

In the first quarter, the company's EBITA margin narrowed to 6.3 percent from 7.6 percent.

Reuters - Global Times