Philips' (PHG) Q1 Earnings Down Y/Y on Supply Chain Constraints

Koninklijke Philips N.V. PHG reported first-quarter 2022 adjusted earnings of €0.15 per share, down 46.4% year over year.

Sales increased 2% on a year-over-year basis to €3.92 billion. Comparable sales (includes adjustments for consolidation charges & currency effects) decreased 4% year over year, primarily due to headwinds caused by global supply chain challenges and consequences of the Respironics field action.

Comparable sales in the Personal Health businesses witnessed high-single-digit increase on a year-over-year basis. This was fully offset by a double-digit decline in the Connected Care businesses and low-single-digit decline in the Diagnosis & Treatment businesses.

Philips’ comparable order intake grew 5% year over year in the reported quarter. Diagnosis & Treatment businesses witnessed high-single-digit growth, while the Connected Care business reported flat comparable order intake.

Sales decreased 3% on a comparable basis in growth geographies. Sales in mature geographies were down 4% year over year on a comparable basis.

Koninklijke Philips N.V. Price, Consensus and EPS Surprise

Koninklijke Philips N.V. Price, Consensus and EPS Surprise

Koninklijke Philips N.V. price-consensus-eps-surprise-chart | Koninklijke Philips N.V. Quote

Philips’ shares were down more than 11% following first-quarter 2022 results. Markedly, Philips’ shares have dropped 17.7% to date compared with the Zacks Medical-Products industry’s decline of 12.7%.

Segmental Update

Diagnosis & Treatment revenues increased 3% from the year-ago quarter to €1.91 billion. Comparable sales declined 2% year over year.

Image-Guided Therapy witnessed high-single-digit growth in the reported quarter. However, Ultrasound and Diagnostic Imaging revenues declined due to supply chain shortages and tough year-over-year comparisons.

Connected Care business revenues declined 14% year over year to €993 million. Comparable sales decreased 21%, primarily due to consequences of the Respironics field action and the impact of supply chain headwinds.

Personal Health sales increased 13% year over year to €838 million. Comparable sales were up 8%, with double-digit growth in Oral Healthcare and Mother & Child Care, while remaining flat in Personal Care.

Other segment sales €176 million, up €100 million on a year-over-year basis.

Operating Details

Gross margin contracted 30 basis points (bps) on a year-over-year basis to 38.6% in the reported quarter.

General & administrative expenses, as percentage of sales, decreased 60 bps on a year-over-year basis to 4%. However, selling expenses increased 140 bps to 27.2%. Research & development expenses also increased 160 bps to 12.6%.

In the reported quarter, procurement cost savings totaled €97 million. In response to the inflationary headwinds, Philips is implementing additional cost-saving measures of €150-200 million for 2022.

Restructuring, acquisition-related and other charges amounted to €350 million compared with €301 million in the year-ago quarter. The reported quarter’s figure includes €65 million for the Respironics field action provision, a €100-million provision related to potential higher execution costs of the field action program and €50 million for running remediation costs in Respironics.

Philips’ adjusted earnings before interest, taxes and amortization (“EBITA”) — the company’s preferred measure of operational performance — were negative €107 million against positive EBITA of €61 million.

Diagnosis & Treatment EBITA margins contracted 280 bps on a year-over-year basis to 5.9%. Connected Care adjusted EBITA margin was 0.4% compared with 12.9% in the year-ago quarter.

Personal Health’s adjusted EBITA margins expanded 130 bps on a year-over-year basis to 15.3%.

Balance Sheet

As of Mar 31, 2022, Philips’ cash and cash equivalents were €1.44 billion and total debt was €7 billion. This compares with cash and cash equivalents of €2.30 billion and total debt of €6.98 billion as of Dec 31, 2021.

Guidance

Philips expects 2022 comparable sales growth between 3% and 5%. First-half sales growth is expected to decline in the mid-single-digit range, while in second-half 2022 it is anticipated to witness high-single-digit growth.

Zacks Rank and Stocks to Consider

Phillips currently has a Zacks Rank #5 (Strong Sell).

Lantheus Holdings LNTH, Owens & Minor OMI and Maravai Life Sciences MRVI are better-ranked stocks worth considering in the same industry. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Lantheus, Owens & Minor and Maravai are expected to report their quarterly results on Apr 29, May 3 and May 5, respectively.

On a year-to-date basis, Lantheus has returned 101.9%. However, shares of Owens & Minor and Maravai are down 8.8% and 21.3%, respectively.

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