Koninklijke Philips N.V. (NYSE:) reported fourth-quarter 2019 adjusted earnings of 92 cents per share and revenues of $6.59 billion.
The company reported earnings of €0.83, up 9.2% from the year-ago quarter. Sales increased 6.7% on a year-over-year basis to €5.96 billion.
Shares declined 1.8% to close at $47.83 on Jan 28, following the fourth-quarter 2019 results.
Comparable sales (includes adjustments for consolidation charges & currency effects) grew 3% year over year, driven by mid-single-digit growth in the Personal Health and Diagnosis & Treatment businesses.
The company’s comparable order intake grew 3%, reflecting softness in North America.
Sales rose 11% on a comparable basis in growth geographies, driven by double-digit growth in China. Comparable order intake grew in high-single digit, reflecting double-digit growth in China and Latin America.
Sales in mature geographies remained flat year over year on a comparable basis, with mid-single-digit growth in North America and low single-digit growth in Western Europe.
Comparable order intake grew in low single digit, reflecting high single-digit growth in Western Europe and low single-digit growth in North America, partly offset by a high single-digit decline in other mature geographies.
Koninklijke Philips N.V. Price, Consensus and EPS Surprise
Koninklijke Philips N.V. price-consensus-eps-surprise-chart | Koninklijke Philips N.V. Quote
Segment Details
Diagnosis & Treatment revenues increased 10.1% from the year-ago quarter to €2.52 billion. Comparable sales grew 5%, driven by high single-digit growth in Image-Guided Therapy, mid-single-digit growth in Ultrasound and low single-digit growth in Diagnostic Imaging.
On a geographic basis, China witnessed double-digit growth. Philips won large contracts in China driven by its innovative portfolio of diagnostic imaging, image-guided therapy and patient monitoring solutions.
The company signed an agreement with the Xi’an International Medical Group in China to deliver solutions to address clinical and research needs in cardiology, radiation oncology and critical care.
Moreover, Philips continued to benefit from the highly successful Azurion platform launch in China in the third quarter.
Mature geographies grew at a low single-digit rate, reflecting mid-single-digit growth in North America and Western Europe, partly offset by a double-digit decline in other mature geographies.
Connected Care business revenues improved 5.7% to €1.35 billion. Comparable sales climbed 2%, driven by mid-single-digit growth in Monitoring & Analytics and flat sales in Sleep & Respiratory Care.
Mature geographies grew in low single digits, primarily due to low-single digit rise in North America, partly offset by a low single-digit decline in Western Europe and other mature geographies.
Growth geographies showed high single-digit growth, driven by double-digit growth in China and India.
Philips expanded its General Care solutions portfolio in the United States with the launch of the EarlyVue VS30 vital signs monitor. It uses automated Early Warning Scoring (EWS) to collect critical vital signs and calculate risk-based alerts that allow clinicians to identify subtle signs of patient deterioration.
Personal Health sales improved 6.3% year over year to €1.85 billion. Comparable sales grew 4%, driven by double-digit growth in Oral Healthcare and mid-single-digit growth in Personal Care.
Growth geographies grew in mid-single digits, driven by double-digit growth in Central and Eastern Europe. Mature geographies posted mid-single-digit growth primarily driven by high single-digit growth in North America.
The company rolled out Philips’ premium Shaver S9000 Prestige with BeardAdapt Sensor and mid-range Shaver S7000 with a personalized solution for sensitive skin globally during the quarter.
Moreover, building on its oral care solutions, the company rolled out the BrushSmart program in collaboration with Delta Dental of California during the quarter.
Other segment sales slumped 21.8% to €172 million primarily due to lower royalty income.
Important Partnerships
During the quarter, Philips signed a five-year partnership with Regional Medical Center in South Carolina to provide diagnostic imaging and image-guided therapy solutions to innovate patient care.
The company also collaborated with US-based Inspira Health to standardize patient monitoring and drive innovation in diagnostic imaging and image-guided therapies in order to enhance patient care and improve clinical workflow performance.
Operating Details
Gross margin contracted 270 basis points (bps) on a year-over-year basis to 45.4% in the reported quarter.
Selling and general & administrative expenses contracted 70 bps and 90 bps, respectively. However, research & development expenses expanded 40 bps.
In the reported quarter, cost savings totaled €125 million, reflecting procurement savings of €39 million. Savings from overhead and other productivity programs were €86 million.
Philips’ adjusted earnings before interest, taxes and amortization (EBITA) — the company’s preferred measure of operational performance — were €1.06 billion, up 9.8% from the year-ago quarter.
Adjusted EBITA margin expanded 50 bps on a year-over-year basis to 17.9%, primarily due to sales growth and productivity, partly offset by lower IP royalty income, investments and tariffs.
Diagnosis & Treatment, Connected Care and Personal Health EBITA margins expanded 40, 160 and 200 bps, respectively.
Balance Sheet & Other Details
As of Dec 31, 2019, Philips’ cash and cash equivalents were €1.43 billion and total debt was €5.45 billion. This compares with cash and cash equivalents of €1.10 billion and total debt of €5.77 billion as of Sep 30.
Meanwhile, net cash flow generated from operating activities came in at €1.27 billion. Free cash flow was €959 million.
Philips completed 41.5% of its share buyback program announced on Jan 29.
Guidance
For first-quarter 2020, restructuring, acquisition-related and other charges for Diagnosis & Treatment, Connected Care, Personal Health and Other businesses are expected to be €55 million, €25 million, €5 million and €10 million, respectively.
Philips reiterated its overall target of 4-6% comparable sales growth, productivity savings of €1.8 billion and adjusted EBITA margin improvement of 100 bps per year on average for the 2017-2020 period. The company expects the Connected Care business to deliver an adjusted EBITA margin of 13-15% next year.
For full-year 2020, the company expects U.S. healthcare market growth in low single-digit level and mid-to-high single-digit health care market growth in China. Moreover, modest low single-digit growth in Western Europe is expected in 2020.
Net tariff impact is expected to be around €70 million in 2020.
Zacks Rank and Other Stocks to Consider
Currently, Phillips has a Zacks Rank #2 (Buy).
Microchip Technology Incorporated (NASDAQ:) , Perion Network Ltd (NASDAQ:) and Splunk Inc. (NASDAQ:) are some other top-ranked stocks in the broader computer and technology sector. All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Microchip, Perion and Splunk are set to report quarterly results on Feb 4, 12 and 27, respectively.
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