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Koninklijke Philips' (PHG) Q3 Sales Up Y/Y, Earnings Down
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Koninklijke Philips N.V. (PHG - Free Report) reported third-quarter 2018 adjusted earnings of €0.31 (38 cents per share), down 6.1% from the year-ago quarter.
Sales came in at €4.3 billion ($5 billion) up 3.8% on a year-over-year basis. Comparable sales (includes adjustments for consolidation charges & currency effects) grew 4%, reflecting high single-digit growth in the Diagnosis & Treatment businesses and low single-digit growth in Personal Health businesses. However, this was offset by low-single-digit decline in the Connected Care & Health Informatics.
The company’s comparable order intake increased 11% year over year, driven by double-digit growth in Diagnosis & Treatment and mid-single-digit growth in the Connected Care & Health Informatics.
Sales increased 9% on a comparable basis in growth geographies, driven by double-digit growth in Latin America, APAC, Central & Eastern Europe and high single-digit growth in China.
Sales in mature geographies increased 2% on a comparable basis, due to mid-single-digit growth in Western Europe and low single-digit growth in North America and other mature geographies.
Koninklijke Philips N.V. Price, Consensus and EPS Surprise
Diagnosis & Treatment revenues increased 7% from the year-ago quarter to €1.75 billion. Comparable sales grew 6%, driven by double-digit growth in Ultrasound, high single-digit growth in Image-Guided Therapy and mid-single-digit growth in Diagnostic Imaging.
Sales benefited from the recent release of products and solutions, innovative partnerships and increased geographical coverage.
On a geographic basis, double-digit growth in China & Western Europe and high-single-digit growth in North America were witnessed.
Connected Care & Health Informatics revenues were down 1.3% to €741 million and comparable sales declined 2% due to low-single-digit decline in Healthcare Informatics and Monitoring & Analytics. However, Therapeutic Care increased at a mid-single-digit rate.
Personal Health sales increased 1.7% year over year to €1.67 billion. Comparable sales inched up 4%, driven by mid-single-digit growth in Sleep & Respiratory Care and Personal Care and Domestic Appliances. Health & Wellness sales remain unchanged on a year-over-year basis.
However, currency fluctuations in Turkey and Argentina, supply chain disruptions due to bad weather in Hong Kong and India and trade sanctions in Iran had a negative impact of about 80 basis points (bps) on comparable sales.
Philips benefited from strong demand for DreamWear Full Face mask. Following the release, the company recorded double-digit growth in the mask segment.
The company also launched Series 9000 Prestige shaver in the high-end male grooming portfolio.
Other segment sales were €134 million, up 22.9% 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 €568 million, up 6.8% from the year-ago quarter. However, adjusted EBITA was negatively offset by 60 bps due to currency fluctuations.
Adjusted EBITA margin expanded 40 bps on a year-over-year basis to 13.2%, driven by 4% comparable sales growth.
Adjusted EBITA margin for Diagnosis & Treatment expanded 40 bps. Personal Health adjusted EBITA margins expanded 10 bps on the back of operational improvements but was offset by 80 bps due to currency fluctuations. However, Connected Care & Health Informatics adjusted EBITA margin contracted 190 bps due to lower sales.
Acquisitions Aiding Portfolio Growth
During the quarter, Philips acquired Xhale Assurance, which develops and commercializes sensor technologies. The acquisition is expected to boost the already existing sensor capabilities of the company.
The company also acquired Blue Willow Systems, which is expected to enhance its Carepoint 6.0 senior living platform. With its software-as-a-service (SaaS) business model and other added functionalities like Bluetooth enabled wearable devices, real-time location tracking and enterprise reporting Philips’ customers will have access to new solutions.
Further, management noted that its prior acquisitions have been adding to top-line growth. Volcano and Spectranetics both witnessed double-digit growth in the quarter.
Partnerships Driving Clientele
Philips inked six new long-term strategic partnership agreements across the globe.
The company partnered with Children’s Health hospital in Dallas to enhance pediatric care with its monitoring and health informatics solutions.
In Australia, Philips announced two long-term partnerships with Illawarra Shoalhaven local health district & Nepean Blue Mountains local health district. The partnerships are expected to drive operational performance at nine hospitals and to assist precision diagnosis & therapy.
Additionally, Philips also entered into a multi-year partnership agreement with St. Andrew’s Toowoomba Hospital in Australia. The partnership will enable the company to fully digitize the care management process and enable clinical analytics with the installation of Philips Tasy EMR.
Moreover, the company also collaborated with “Oxford University Hospitals NHS Foundation Trust” in UK to make a digital pathology network.
Balance Sheet & Other Details
As of Sep 30, 2018, Philips’ cash and cash equivalents were €1.26 billion compared with €1.62 billion at the end of the previous quarter. The company’s long-term debt decreased to €3.17 billion from €3.69 billion in the last quarter.
During the reported quarter, the company achieved procurement savings of €72 million. Overhead and other productivity programs resulted in savings of €52 million. The company’s year-to-date savings came in at €330 million. Management noted that the company is on track to deliver 2018 savings of €400 million.
Net cash flow generated from operating activities came in at €265 million compared with net cash flow of €295 million in the year-ago quarter primarily attributed to higher inventories, excessive taxes paid and €18 million charges paid to the European Commission Investigation.
Guidance
Philips expects the U.S. healthcare market to grow at a low to mid-single digit rate, with imaging driving growth. Western Europe health care market is expected to grow at a modest low-single-digit rate. In China, management expects high single-digit market growth primarily driven by government policies and private investments in health care facilities.
For 2018, Philips reiterated comparable sales growth of 4-6%. The company anticipates adjusted EBITA margin to improve around 100 basis points. EBITA is expected to be €60 million for fiscal 2018.
Restructuring costs are expected to be €15 million for fourth-quarter 2018. Acquisition related costs are expected to be 50 bps.
Philips expects free cash flow between €1 billion and €1.5 billion for 2018.
Additionally, Philips expects to discontinue its Cleveland manufacturing operations in first-quarter 2019.
Philips expects trade tariffs between the United Stated and China to have a negative net impact of €60 million in 2019.
Long-term earnings growth rate for Garmin, FUJITSU and Hoya is projected to be 7.4%, 12.2% and 10% respectively.
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Koninklijke Philips' (PHG) Q3 Sales Up Y/Y, Earnings Down
Koninklijke Philips N.V. (PHG - Free Report) reported third-quarter 2018 adjusted earnings of €0.31 (38 cents per share), down 6.1% from the year-ago quarter.
Sales came in at €4.3 billion ($5 billion) up 3.8% on a year-over-year basis. Comparable sales (includes adjustments for consolidation charges & currency effects) grew 4%, reflecting high single-digit growth in the Diagnosis & Treatment businesses and low single-digit growth in Personal Health businesses. However, this was offset by low-single-digit decline in the Connected Care & Health Informatics.
The company’s comparable order intake increased 11% year over year, driven by double-digit growth in Diagnosis & Treatment and mid-single-digit growth in the Connected Care & Health Informatics.
Sales increased 9% on a comparable basis in growth geographies, driven by double-digit growth in Latin America, APAC, Central & Eastern Europe and high single-digit growth in China.
Sales in mature geographies increased 2% on a comparable basis, due to mid-single-digit growth in Western Europe and low single-digit growth 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 7% from the year-ago quarter to €1.75 billion. Comparable sales grew 6%, driven by double-digit growth in Ultrasound, high single-digit growth in Image-Guided Therapy and mid-single-digit growth in Diagnostic Imaging.
Sales benefited from the recent release of products and solutions, innovative partnerships and increased geographical coverage.
On a geographic basis, double-digit growth in China & Western Europe and high-single-digit growth in North America were witnessed.
Connected Care & Health Informatics revenues were down 1.3% to €741 million and comparable sales declined 2% due to low-single-digit decline in Healthcare Informatics and Monitoring & Analytics. However, Therapeutic Care increased at a mid-single-digit rate.
Personal Health sales increased 1.7% year over year to €1.67 billion. Comparable sales inched up 4%, driven by mid-single-digit growth in Sleep & Respiratory Care and Personal Care and Domestic Appliances. Health & Wellness sales remain unchanged on a year-over-year basis.
However, currency fluctuations in Turkey and Argentina, supply chain disruptions due to bad weather in Hong Kong and India and trade sanctions in Iran had a negative impact of about 80 basis points (bps) on comparable sales.
Philips benefited from strong demand for DreamWear Full Face mask. Following the release, the company recorded double-digit growth in the mask segment.
The company also launched Series 9000 Prestige shaver in the high-end male grooming portfolio.
Other segment sales were €134 million, up 22.9% 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 €568 million, up 6.8% from the year-ago quarter. However, adjusted EBITA was negatively offset by 60 bps due to currency fluctuations.
Adjusted EBITA margin expanded 40 bps on a year-over-year basis to 13.2%, driven by 4% comparable sales growth.
Adjusted EBITA margin for Diagnosis & Treatment expanded 40 bps. Personal Health adjusted EBITA margins expanded 10 bps on the back of operational improvements but was offset by 80 bps due to currency fluctuations. However, Connected Care & Health Informatics adjusted EBITA margin contracted 190 bps due to lower sales.
Acquisitions Aiding Portfolio Growth
During the quarter, Philips acquired Xhale Assurance, which develops and commercializes sensor technologies. The acquisition is expected to boost the already existing sensor capabilities of the company.
The company also acquired Blue Willow Systems, which is expected to enhance its Carepoint 6.0 senior living platform. With its software-as-a-service (SaaS) business model and other added functionalities like Bluetooth enabled wearable devices, real-time location tracking and enterprise reporting Philips’ customers will have access to new solutions.
Further, management noted that its prior acquisitions have been adding to top-line growth. Volcano and Spectranetics both witnessed double-digit growth in the quarter.
Partnerships Driving Clientele
Philips inked six new long-term strategic partnership agreements across the globe.
The company partnered with Children’s Health hospital in Dallas to enhance pediatric care with its monitoring and health informatics solutions.
In Australia, Philips announced two long-term partnerships with Illawarra Shoalhaven local health district & Nepean Blue Mountains local health district. The partnerships are expected to drive operational performance at nine hospitals and to assist precision diagnosis & therapy.
Additionally, Philips also entered into a multi-year partnership agreement with St. Andrew’s Toowoomba Hospital in Australia. The partnership will enable the company to fully digitize the care management process and enable clinical analytics with the installation of Philips Tasy EMR.
Moreover, the company also collaborated with “Oxford University Hospitals NHS Foundation Trust” in UK to make a digital pathology network.
Balance Sheet & Other Details
As of Sep 30, 2018, Philips’ cash and cash equivalents were €1.26 billion compared with €1.62 billion at the end of the previous quarter. The company’s long-term debt decreased to €3.17 billion from €3.69 billion in the last quarter.
During the reported quarter, the company achieved procurement savings of €72 million. Overhead and other productivity programs resulted in savings of €52 million. The company’s year-to-date savings came in at €330 million. Management noted that the company is on track to deliver 2018 savings of €400 million.
Net cash flow generated from operating activities came in at €265 million compared with net cash flow of €295 million in the year-ago quarter primarily attributed to higher inventories, excessive taxes paid and €18 million charges paid to the European Commission Investigation.
Guidance
Philips expects the U.S. healthcare market to grow at a low to mid-single digit rate, with imaging driving growth. Western Europe health care market is expected to grow at a modest low-single-digit rate. In China, management expects high single-digit market growth primarily driven by government policies and private investments in health care facilities.
For 2018, Philips reiterated comparable sales growth of 4-6%. The company anticipates adjusted EBITA margin to improve around 100 basis points. EBITA is expected to be €60 million for fiscal 2018.
Restructuring costs are expected to be €15 million for fourth-quarter 2018. Acquisition related costs are expected to be 50 bps.
Philips expects free cash flow between €1 billion and €1.5 billion for 2018.
Additionally, Philips expects to discontinue its Cleveland manufacturing operations in first-quarter 2019.
Philips expects trade tariffs between the United Stated and China to have a negative net impact of €60 million in 2019.
Zacks Rank and Stocks to Consider
Currently, Phillips has a Zacks Rank #3 (Hold).
Some better-ranked stocks in the computer and technology sector are Garmin (GRMN - Free Report) , FUJITSU and Hoya Corp. (HOCPY - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks Rank #1 stocks here.
Long-term earnings growth rate for Garmin, FUJITSU and Hoya is projected to be 7.4%, 12.2% and 10% respectively.
Today's Stocks from Zacks' Hottest Strategies
It's hard to believe, even for us at Zacks. But while the market gained +21.9% in 2017, our top stock-picking screens have returned +115.0%, +109.3%, +104.9%, +98.6%, and +67.1%.
And this outperformance has not just been a recent phenomenon. Over the years it has been remarkably consistent. From 2000 - 2017, the composite yearly average gain for these strategies has beaten the market more than 19X over. Maybe even more remarkable is the fact that we're willing to share their latest stocks with you without cost or obligation.
See Them Free>>