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Philips (PHG) Q1 Earnings Up on Solid Sales, China Growth

Aniruddha Ganguly

Philips PHG reported first-quarter 2019 adjusted earnings of €0.29 (33 cents) per share, up 26.1% from the year-ago quarter.

Sales were €4.15 billion, up 5% on a year-over-year basis. Comparable sales (including adjustments for consolidation charges & currency effects) grew 2%, reflecting mid-single-digit growth in the Personal Health business and low-single-digit growth in the Diagnosis & Treatment business. However, this was offset by a mid-single-digit decline in the Connected Care business.

The company’s comparable order intake increased 2% year over year.

Sales increased 10% on a comparable basis in growth geographies, driven by double-digit growth in China, and Central & Eastern Europe.

Sales in mature geographies decreased 1% on a comparable basis, reflecting flat sales in Western Europe, and a low-single-digit decline in North America and other mature geographies.
 

Koninklijke Philips N.V. Price, Consensus and EPS Surprise

Koninklijke Philips N.V. Price, Consensus and EPS Surprise | Koninklijke Philips N.V. Quote

 

Segment Details

Diagnosis & Treatment revenues increased 5% from the year-ago quarter to €1.72 billion. Comparable sales grew 2%, driven by double-digit growth in Image-Guided Therapy, negated by a mid-single-digit decline in Diagnostic Imaging.

On a geographic basis, China and Latin America witnessed double-digit growth.

Connected Care revenues were up 5% to €1.01 billion, but comparable sales declined 1% on the back of mid-single-digit decline in Monitoring & Analytics. However, Sleep & Respiratory Care revenues increased at low-single-digit rate.

On a geographic basis, China, Middle East and Turkey witnessed double-digit growth.

Personal Health sales increased 5% year over year to almost €1.30 billion. Comparable sales also rose 5%, driven by double-digit growth in Oral Healthcare and low-single-digit growth in Personal Care and Domestic Appliances.

Comparable sales on a geographic basis showed double-digit growth in India, partially offset by a mid-single-digit decline in Middle East and Turkey.

Other segment sales were €120 million, up 6% from the year-ago quarter.

Operating Details

Philips’ adjusted earnings before interest, taxes and amortization (EBITA) — the company’s preferred measure of operational performance — was €364 million, up 5.8% from the year-ago quarter.

Adjusted EBITA margin expanded 10 basis points (bps) on a year-over-year basis to 8.8%, driven by operational improvements. This was partially offset by lower growth, an adverse currency effect of 30 bps and the net tariffs impact of 20 bps.

Adjusted EBITA margin for Diagnosis & Treatment and Personal Health expanded 170 bps and 10 bps, respectively. However, Connected Care adjusted EBITA margin contracted 400 bps due to lower sales, negative impact of tariffs and unfavorable currency.

In first-quarter 2019, procurement savings amounted to €38 million. Savings from overhead and other productivity programs were €75 million.

Balance Sheet & Other Details

As of Mar 31, 2019, Philips’ cash and cash equivalents were €1.45 billion compared with €1.69 billion at the end of the previous quarter. The company’s long-term debt increased to €5.68 billion compared with €4.82 billion in the previous quarter.

Meanwhile, cash flow generated from operating activities came in at €14 million compared with cash flow of €92 million in the year-ago quarter.

Free cash outflow was €206 million compared with €47 million in the year-ago quarter.

On Jan 29, 2019, Philips announced its new share buyback program worth €1.5 billion. At the end of the first quarter, the company had completed 8.3% of this share buyback program.

Guidance

Philips expects the U.S. healthcare market to grow at a low to mid-single-digit rate in 2019. Western Europe healthcare market is expected to grow at a modest low-single-digit rate. In China, management expects mid to high-single-digit market growth, likely to be driven by government policies and private investments in healthcare facilities.

Philips expects tariffs related to the United States and China trade war to have a negative net impact of €45 million in 2019.

In the second quarter of 2019, the company expects to complete its €1.5-billion share buyback program that was announced on Jun 28, 2017.

Zacks Rank & Stocks to Consider

Currently, Philips carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader technology sector include Ceridian HCM Holding CDAY, Upland Software UPLD and Fortinet FTNT. While Ceridian HCM Holding and Upland Software sport a Zacks Rank #1 (Strong Buy), Fortinet carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

While Ceridian HCM Holding is set to report quarterly results on May 1, Upland Software and Fortinet are scheduled to report on May 2.

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