Shares of Koninklijke Phillips N.V. PHG declined 4.0% during the trading session on Apr 28, following the first-quarter 2015 earnings release. In particular the company reported first-quarter 2015 net income of €0.11 per share (12 cents), a significant decrease of 26.6% from the year-ago quarter tally of €0.15.
The results were affected by higher restructuring expense, acquisition-related charges and ongoing currency fluctuations. Also, sluggishness in the conventional lighting business and its ongoing transition, as well as low profitability of the Healthcare segment worsened the bottom-line decline.
Inside the Headlines
Total revenues increased 13.8% year over year to €5,339 million ($6,023.9 million). Also, sales increased 2% in first-quarter 2015 on a comparable basis.
Improvement in sales was mainly attributable to strong growth in the Consumer Lifestyle segment. Despite challenging conditions in the Healthcare market, there was growth in order levels, which in turn, supplemented the top-line enhancement.
Segment-wise, in the first quarter, Healthcare segment sales rose 15% year over year to €2,261 million ($2,551.1 million). The segment reported a comparable sales increase of 1% due to mid single-digit growth in Imaging Systems and Customer Services, partially offset by mid-single digit decline in Patient Care & Monitoring Solutions and low single-digit fall in Healthcare Informatics, Solutions & Services.
Consumer Lifestyle revenues climbed 17% in the quarter to €1,190 million ($1,342.7 million). On a comparable basis, segmental revenues increased 10% year over year, aided by double-digit growth in Health & Wellness and high-single digit growth in Personal Care and Domestic Appliances.
Lighting segment’s sales increased 9% year over year to €1,719 million ($1,939.5 million). On a comparable basis, revenues dipped 3% owing to strong decline in conventional lighting business and mid-single digit fall in Light Sources & Electronics as well as Consumer Luminaires. This decline was slightly offset by mid-single-digit growth in Professional Lighting Solutions and LED sales.
Revenues in the Innovation, Group & Services segment improved 22% to €169 million ($190.7 million). On a comparable basis, revenues grew 15% year over year.
Geographically, sales in the growth geographies were up 6% on a comparable basis, mainly driven by solid performance of the Consumer Lifestyle and Healthcare segments. Moreover, strong sales in Latin America and Central & Eastern Europe contributed to the top-line growth. However, weak sales in China proved to be a drag.
Also, comparable sales in mature geographies remained flat on a year-over-year basis, owing to low-single digit growth rate in Western Europe somewhat offset by other mature geographies.
Phillips reported adjusted earnings before Interest, Tax and Amortization (“EBITA”) of €327 million ($368.9 million) or 6.1% of sales, compared with 6.5% of sales in the prior-year quarter. Unimpressive performance of the Healthcare segment mainly triggered the fall in EBITA margin.
Liquidity
Cash utilized in operating activities came in at €256 million ($288.8 million), a decrease from the prior-year figure of €273 million. In the reported quarter, an increase in working capital helped offset lower cash earnings.
The company’s cash balance declined to €1,667 million ($1880.9 million) from €1,727 million in the prior year.
Phillips’s net debt stood at €4.1 billion ($4.6 billion), compared with €2.0 billion at the end of the prior-year quarter. Weak liquidity, coupled with charges related to Volcano acquisition, escalated the company’s debts in the reported quarter.
Going Forward
Management believes that continuous focus on improvement of operational performance and EBITA margin will help the company achieve its 2016 targets. Also, Phillips expects its Accelerate! Program to improve service levels, enhance customer satisfaction and result in significant cost-savings to act as a key driver of long-term growth.
Last month the company has declared to sell 80% of its combined LED components and Automotive lighting business to GO Scale Capital (read more: Philips (PHG) to Sell 80% Lighting Business to GO Scale). Philips expects the its lighting business to become a separate legal entity by the end of 2015 and it intends to effectuate the separation through an IPO in the first half of 2016. On completion of this, Phillips will solely focus on its leading marketing lighting solutions to ehance growth.
Phillips currently has a Zacks Rank #5 (Strong Sell). Better-ranked stocks in the sector include Kopin Corp. KOPN, GigOptix, Inc. GIG and Icahn Enterprises, L.P. IEP. While Kopin Corp. sports a Zacks Rank #1 (Strong Buy), both GigOptix and Icahn hold a Zacks Rank #2 (Buy) each.
Note: 1 EUR = 1.1283 (period average from Jan 1, 2015 to Mar 31, 2015 One Koninklijke Phillips ADR corresponds to one ordinary share.
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