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Philips' (PHG) Q4 Earnings up Y/Y on Connected Care Growth

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Koninklijke Philips N.V. PHG reported fourth-quarter 2020 adjusted earnings of €0.83 per share, up 13.3% year over year.

Sales increased 0.7% on a year-over-year basis to €6 billion. Comparable sales (includes adjustments for consolidation charges & currency effects) increased 7% year over year, primarily due to double-digit comparable sales growth in the Connected Care business, mid-single-digit growth in the Personal Health business and low-single-digit growth in the Diagnosis & Treatment businesses.

The company’s comparable order intake grew 7% year over year.

Sales increased 7% on a comparable basis in growth geographies, driven by double-digit growth in Central & Eastern Europe and Russia & Central Asia and high single-digit growth in Middle East & Turkey, partially offset by a decline in China. Comparable order intake declined mid-single digit.

Sales in mature geographies were up 6% year over year on a comparable basis. Western Europe witnessed 14% year-over-year growth and North America sales grew 1%.

Markedly, Philips’ shares have returned 14.1% to date against the Zacks Electronics- Miscellaneous Products industry’s rally of 22.8%.

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

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

Koninklijke Philips N.V. price-consensus-eps-surprise-chart | Koninklijke Philips N.V. Quote

 

Segmental Update

Diagnosis & Treatment revenues declined 5% from the year-ago quarter to €2.46 billion. Comparable sales inched up 1% year over year.

Diagnostic Imaging grew high-single digit. However, both Image-Guided Therapy and Ultrasound revenues declined mid-single digit due to COVID-19-led postponement of installations and elective procedures.

Comparable sales in growth geographies showed mid-single-digit growth, driven by double-digit growth in China and Central & Eastern Europe.

Mature geographies declined at a low-single-digit rate, reflecting mid-single-digit decline in North America. Western Europe witnessed low-single-digit growth.

Connected Care business revenues grew 17% to €1.58 billion. Comparable sales increased 24%, primarily driven by COVID-19-generated demand with double-digit growth in both Sleep & Respiratory Care and Monitoring & Analytics.

Mature geographies grew in double digits, primarily on double-digit growth in Western Europe and North America.

Growth geographies showed double-digit growth, driven by double-digit growth in Central & Eastern Europe, Russia & Central Asia, and Latin America, as well as high-single-digit growth in China.

Personal Health sales decreased 1% year over year to €1.82 billion. Comparable sales were up 5% with double-digit growth in Domestic Appliances, mid-single-digitgrowth in Personal Care and alow-single-digit growth in Oral Healthcare.

Growth geographies increased low-single digit, primarily due to double-digit growth in Middle East & Turkey, India, Latin America and Russia & Central Asia, partially offset by China. Mature geographies posted a high-single-digit sales growthdriven by double-digit growth in Western Europe.

Other segment sales dropped 19.8% to €138 million, primarily due to lower royalty income.

Operating Details

Gross margin expanded 230 basis points (bps) on a year-over-year basis to 47.8% in the reported quarter.

General & administrative expenses as percentage of sales increased 50 bps on a year-over-year basis to 2.9%. However, selling expenses decreased 50 bps to 21.2%. Research & development expenses also decreased 90 bps to 8.2%.

In the reported quarter, procurement cost savings totaled €67 million. Savings from overhead and other productivity programs were €56 million.

Philips’ adjusted earnings before interest, taxes and amortization (“EBITA”) — the company’s preferred measure of operational performance — were €1.14 billion, up 6.8% from the year-ago quarter.

Adjusted EBITA margin expanded 110 bps on a year-over-year basis to 19%. COVID-19 negatively impacted adjusted EBITA by roughly 40 bps.

Diagnosis & Treatment EBITA margins contracted 230 bps on a year-over-year basis to 14%. Moreover, Personal Health adjusted EBITA margins contracted 10 bps.

Connected Care adjusted EBITA margin improved to 27.2% compared with 19.4% in the year-ago quarter.

Balance Sheet & Other Details

As of Dec 31, 2020, Philips’ cash and cash equivalents were €3.27 billion and total debt was €6.93 billion. This compares with cash and cash equivalents of €2.49 billion and total debt of €7.23 billion as of Sep 30, 2020.

Meanwhile, net cash flow generated from operating activities came in at €2.78 billion, up 36.7% year over year. Free cash flow was €1.85 billion, compared with €1.05 billion in the year-ago quarter.

Guidance

For 2021, Philips plans to deliver low-single-digit comparable sales growth, driven by solid growth in Diagnosis & Treatment and Personal Health, partly offset by lower Connected Care sales. Adjusted EBITA margin is expected to improve 60-80 bps.

For 2021-2025, Philips targets average annual comparable sales growth in the 5-6% range.

Adjusted EBITA margin is expected to expand 60-80 bps on average annually between 2021 and 2025 timeframe.

Moreover, free cash flow is expected to be above €2 billion by 2025.

Zacks Rank and Other Stocks to Consider

Phillips currently sports a Zacks Rank #2 (Buy).

Littelfuse LFUS, Kulicke&Soffa KLIC and Knowles KN are better-ranked stocks worth considering from the broader computer and technology sector. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Moreover, while Littelfuse is set to report their quarterly results on Feb 3, both Kulicke&Soffa and Knowles are scheduled to report the same on Feb 4.

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Koninklijke Philips N.V. (PHG) : Free Stock Analysis Report
 
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Kulicke and Soffa Industries, Inc. (KLIC) : Free Stock Analysis Report
 
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