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Philips' (PHG) Q1 Earnings Jump Y/Y on Strong Top-Line Growth

Koninklijke Philips N.V. PHG reported first-quarter 2022 adjusted earnings of €0.22 per share, up 46.7% year over year.

Sales increased 6.4% on a year-over-year basis to €4.17 billion. Comparable sales (including adjustments for consolidation charges & currency effects) increased 6% year over year, primarily due to improved component supplies.

The top line benefited from robust performances by the Diagnosis & Treatment and the Connected Care businesses.

Comparable sales in the Diagnosis & Treatment business increased at a double-digit rate. Connected Care comparable sales grew at low-single-digit. However, comparable sales in the Personal Health business witnessed mid-single-digit decreases on a year-over-year basis.

Philips’ comparable order intake was unchanged year over year in the reported quarter. Diagnosis & Treatment businesses witnessed double-digit growth while the Connected Care business witnessed a decline.

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

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

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Sales increased 10% on a comparable basis in growth geographies. Sales in mature geographies were up 4% year over year on a comparable basis.

Philips shares jumped 14.1% to close at $21.72 on Apr 24 following the impressive results. Markedly, Philips shares have surged 44.9% year to date compared with the Zacks Medical sector’s decline of 0.3%.

Segmental Update

Diagnosis & Treatment revenues increased 15.3% from the year-ago quarter to €2.20 billion. Comparable sales increased 15% year over year, driven by double-digit growth in Ultrasound and Image-Guided Therapy, due to improved component supplies. Diagnostic Imaging recorded mid-single-digit growth.

Connected Care business revenues increased 4% year over year to €1.03 billion. Comparable sales increased 3%, primarily due to strong double-digit growth in Hospital Patient Monitoring.

Personal Health’s comparable sales declined 6% year over year due to the negative impact of the ongoing Russia-Ukraine war and lower demand.

Other segment sales amounted to €132 million, down €44 million on a year-over-year basis.

Operating Details

Gross margin expanded 360 basis points (bps) on a year-over-year basis to 42.1% in the reported quarter.

General & administrative expenses, as a percentage of sales, decreased 20 bps on a year-over-year basis to 3.8%. Moreover, selling expenses decreased 130 bps to 25.9%. Research & development expenses were unchanged at 12.7%.

Restructuring, acquisition-related and other charges amounted to €868 million compared with €350 million in the year-ago quarter.

The reported quarter’s figure includes a  €575 million provision in connection with an anticipated resolution of the economic loss class action in the United States related to the Respironics recall, €150 million restructuring charges related to workforce reduction, and €54 million Respironics field-action running remediation costs.

Operating model productivity savings amounted to €94 million, procurement savings amounted to €32 million, and other productivity programs delivered savings of €64 million, resulting in total savings of €190 million.

Philips’ adjusted earnings before interest, taxes and amortization (“EBITA”) — the company’s preferred measure of operational performance — jumped 47.7% year over year to €359 million. EBITA margin expanded 240 bps on a year-over-year basis to 8.6% in the reported quarter.

Diagnosis & Treatment’s EBITA margins expanded 540 bps on a year-over-year basis to 11.3%, primarily due to higher sales.

Connected Care’s adjusted EBITA margins expanded 200 bps to 2.4%.

Personal Health’s adjusted EBITA margins contracted 210 bps on a year-over-year basis to 13.2%.

Balance Sheet

As of Mar 31, 2023, Philips’ cash and cash equivalents were €1.13 billion and total debt was €8.18 billion. This compares with cash and cash equivalents of €1.17 billion and total debt of €8.20 billion as of Dec 31, 2022.

Operating cash flow was €202 million against the year-ago quarter’s operating cash outflow of €227 million.

Free cash flow was €117 million against the year-ago quarter’s free cash outflow of €402 million.

Guidance

Philips expects to deliver low-single-digit comparable sales growth and high-single-digit adjusted EBITA margin in 2023.

Both the Diagnosis & Treatment and Connected Care segments are expected to witness a mid-single-digit growth rate in 2023. Personal Health is expected to grow low-single-digit.

Philips expects free cash flow between €700 million and €900 million for 2023.

Zacks Rank and Stocks to Consider

Phillips currently has a Zacks Rank #3 (Hold).

Boston Scientific BSX, Edwards Lifesciences EW and IDEXX Laboratories IDXX are some better-ranked stocks worth considering in the same sector. All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Both Boston Scientific and Edwards Lifesciences are set to report their quarterly results on Apr 26. IDEXX is scheduled to report its quarterly result on May 2.

Year to date, shares of IDXX, EW and BSX have gained 23.5%, 19%, and 11%, respectively. However, these companies have underperformed PHG over the time frame.

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