Philips N.V. (PHG) Reports Q3 EPS of EUR0.40

Philips N.V. (NYSE: PHG) reported Q3 EPS of EUR0.40, versus EUR0.34 reported last year. Revenue for the quarter came in at EUR5.9 billion, versus EUR5.84 billion reported last year.

Second-quarter highlights

• Comparable sales of the HealthTech portfolio continued to grow at 5%
• Adjusted EBITA amounted to EUR 544 million, or 9.3% of sales, compared to 8.4% of sales in Q2 2015
• EBITA totaled EUR 464 million, or 7.9% of sales, compared to 7.5% of sales in Q2 2015
• Income from operations (EBIT) amounted to EUR 376 million, compared to EUR 349 million in Q2 2015
• Net income amounted to EUR 431 million, including a EUR 144 million award from the Funai arbitration, compared to EUR 274 million in Q2 2015
• Operating cash flow of EUR 318 million, compared to EUR 186 million in Q2 2015, and a free cash inflow of EUR 127 million, compared to an outflow of EUR 30 million in Q2 2015.

Frans van Houten, CEO:

“Philips’ performance in the second quarter of 2016 was solid, with 3% comparable sales growth overall and strong 5% growth from our HealthTech businesses. Our Accelerate! transformation program delivered further operational improvements across most businesses, while we continued to invest in quality and innovation.

I am pleased with the successful listing of Philips Lighting on Euronext in Amsterdam at the end of May. With that momentous step, Philips will now fully focus on capturing the exciting opportunities in the health technology space, allowing Philips Lighting to do the same in the growing market for energy-efficient lighting. Philips currently retains a majority holding in Philips Lighting with the aim of fully selling down over the next several years.

Our outlook for 2016 remains unchanged, as we continue to expect earnings improvements in the second half of the year, but we are concerned about increased risk due to volatility in a number of markets.”

HealthTech

“Our HealthTech portfolio grew 5%, driven by businesses in Personal Health and Connected Care & Health Informatics. We were ableto drive further operational improvements while keeping up our significant investments in quality and innovation, including in healthinformatics, wearable patient monitoring solutions and digital pathology.

Equipment-order intake remained uneven and fell by 1% on a currency-comparable basis in the quarter. However, we expect good order intake growth in the second half of the year.”

The Personal Health businesses grew by 9% on a comparable basis, with the Adjusted EBITA margin improving by 170 basis points.The Diagnosis & Treatment businesses posted comparable sales growth of 1%, and the Adjusted EBITA margin improved by 20 basispoints. In the Connected Care & Health Informatics businesses, comparable sales grew by 6%, while the Adjusted EBITA margin improved by 110 basis points.

• In line with Philips’ strategy of building multi-year, strategic partnerships, the company signed a USD 36 million agreement with the Medical University of South Carolina Health focused on integrated patient monitoring solutions. In Europe, Philips signed a EUR 19 million agreement with Heart Hospital in Tampere, Finland, to jointly innovate in cardiac care.
• Strengthening its Digital Pathology business, Philips acquired PathXL, an innovator in digital pathology image analysis, workflow software and educational tools. Philips also signed a licensing agreement with Visiopharm to offer their breast cancer panel software algorithms with Philips’ IntelliSite digital pathology solution to support pathologists in providing an objective diagnosis of breast cancer.
• Building on Philips’ expertise in sleep and respiratory care, the company launched the cloud-based Patient Adherence Management Service, which supports new patients’ transition to sleep therapy.
• The Personal Care business successfully launched the OneBlade hybrid styler that trims, shaves and styles in France, the UK, Germany and North America. The Oral Healthcare business introduced the Philips Sonicare FlexCare Platinum Connected toothbrush, its latest innovation that uses Smart Sensor technology to help consumers optimize their brushing routine.
• Within the Image-Guided Therapy business, Philips Volcano delivered another strong performance with double-digit comparable sales growth and continued operational improvements. This was driven by growth across the smart catheter product portfolio, synergies with the Image-Guided Therapy Systems business and expansion into new geographies.
• Building on its commitment to sustainability, Philips launched its new 5-year ‘Healthy people, sustainable planet’ program to improve the lives of 2.5 billion people per year, increase its green revenues to 70% of sales, generate 15% of its sales from circular revenues and become carbon-neutral in its operations by 2020.

Lighting

On May 27, 2016, Philips Lighting was listed and started trading on Euronext in Amsterdam under the symbol ‘LIGHT’. Following the listing of Philips Lighting, Philips retains a 71.225% stake and continues to consolidate Philips Lighting.

In the second quarter, comparable sales in Philips Lighting declined by 1%, while Adjusted EBITA improved by 180 basis points to 9.3% of sales. Full details about the financial performance of Philips Lighting in the second quarter were published on July 22, 2016. The related report can be accessed here.

Separation costs

Costs related to the separation of Philips Lighting amounted to EUR 45 million in the second quarter of 2016. For the second half of 2016, Philips expects separation costs to be in the range of EUR 65–85 million. Another EUR 38 million of costs related to the listing of Philips Lighting were booked through equity in the second quarter of 2016.

Cost savings

Overhead cost savings amounted to EUR 19 million in the second quarter. The Design for Excellence (DfX) program generated EUR 86 million of incremental procurement savings in the quarter. The End2End improvement program achieved EUR 45 million in productivity gains.

For earnings history and earnings-related data on Philips N.V. (PHG) click here.

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