Shares of Koninklijke Phillips N.V. (PHG) declined 2.4%, during the trading session on Jan 28, following the fourth quarter and full year 2014 earnings release. In particular, the company reported net income per share of €0.15 (19 cents) per share for the fourth quarter of 2014, a significant decrease of 65.9% from the year-ago quarter figure of €0.44.
The results were affected by higher restructuring expense, lower operational performance and ongoing sluggishness in key markets like China.
Also, for full year 2014, Philips’ net income per share decreased 64.6% year over year to €0.45 (60 cents).
Inside the Headlines
Total revenues increased marginally by 2.1% year over year to €6,536 million ($8,163 million). However, for full year 2014, it dipped 2.7% year over year to €21,391 million ($28,429 million).
Nevertheless, group nominal sales increased 2% in fourth-quarter 2014 on a comparable basis.
As per the segments, in the fourth quarter, Healthcare segment sales for the quarter rose 1% year over year to €2,849 million ($3,558 million). However, the segment showed a comparable sales decrease of 3% with Customer services and Patient Care & Monitoring Solutions growing in the mid-single digits, Healthcare Informatics, Solutions & Services declining in low-single digits and Imaging systems dropping in double-digits.
The Consumer Lifestyle segment revenues climbed up 7% in the quarter to €1,528 million ($1,908 million). On a comparable basis, segment revenues increased 6% year over year aided by double-digit growth in Health & Wellness, mid-single-digit growth in Personal Care business and low-single-digit growth in Domestic Appliances.
The Lighting segment’s sales increased 3% year over year to €1,975 million ($2,467 million). On a comparable basis, segment revenues dipped 3% owing to decline in Light Sources & Electronics and Consumer Luminaires. Nevertheless, Professional Lightning Solutions posted mid single digit growth.
Revenues in the Innovation, Group & Services segment dropped 18% to €184 million ($230 million). On a comparable basis, revenues declined 21% year over year.
On the basis of geographic cluster, sales in the growth geographies decreased 2% on a comparable basis due to lower sales in the Healthcare and Lighting segment. Latin America recorded strong growth, which was offset by double-digit decrease in China. Also, comparable sales in mature geographies dipped 2% on a year-over-year basis.
Philips reported earnings before Interest, Tax and Amortization (EBITA), excluding charges related to restructuring and acquisitions, of €743 million ($928 million) or 11% of sales, compared with 12.9% in the prior-year quarter.
Liquidity
Cash flow from operating activities came in at €841 million ($1,050 million), an increase from the prior-year figure of €746 million. Growth was primarily driven by an increase in cash flow from the working capital, which was, however, partially offset by reduced cash earnings.
The company’s cash balance rose to €1,873 million ($2,339 million) as against €2,465 million in the prior year.
Philips’s net debt stood at €2.2 billion ($2.7 billion), compared to €1.4 billion at the end of the prior-year quarter.
In Conclusion
Though headwinds weigh upon the 2014 financials, the company expects an improvement in its EBITA and revenues in 2015. Further, Philips remains optimistic on achieving its 2016 targets as per its Accelerate! transformation program, which was introduced to improve its overall performance and reduce costs.
Phillips currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the sector that look promising at the moment include GrafTech International Ltd. (GTI), Mistras Group, Inc. (MG) and Research Frontiers Inc. (REFR). All three stocks hold a Zacks Rank #2 (Buy).
Note: 1 EUR = $1.2489 (period average from Oct 1, 2014 to Dec 31, 2014)
1 EUR = $1.3290 (period average from Jan 1, 2014 to Dec 31, 2014)
One Koninklijke PhillipsADR corresponds to one ordinary share.
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