Koninklijke Phillips Electronics N.V.
) reported net income of €243 million ($328.54 million) in the
second quarter of 2014, compared to €317 million in the prior-year
quarter. Phillips reported second-quarter earnings of €0.26 (35
cents), a decrease from €0.35 (47 cents) in the second quarter of
The year-over-year decline was primarily due to lower
operational results, adverse currency impact and the ongoing
sluggishness in the key markets among others. The company had also
made a voluntary suspension at its Cleveland healthcare production
facility in the prior quarter which remained a headwind in the
Revenues for the quarter declined 6% to €5,293 million
($7,156.14 million). On a nominal basis, the group sales declined
6% year over year, whereas revenues remained flat year over year on
a comparable basis.
The company reported adjusted Earnings before Interest, Tax and
Amortization (EBITA) of €225 million ($304.20 million) or 10.5% of
sales compared with 17.8% in the prior-year quarter. The growth was
driven by higher gross margin in the quarter.
for the quarter were down 10% year over year to €2,137 million
($2,889.22 million). The segment revealed a comparable sales
decline of 4% with Home Healthcare solutions increasing in
mid-single-digit and Customer services in low-single digit.
However, the Patient Care & Clinical Informatics reported a
mid-single-digit decline along with a double-digit decline in
segment revenues declined 1% in the quarter to €1,073 million
($1,450.70 million). However, on a comparable basis, segment
revenues increased 7% year over year aided by a double-digit growth
in Health & Wellness and high-single-digit growth in Domestic
Appliances. Sales in the Personal Care business remained flat year
During the reported quarter, the
's sales decreased 5% year over year to €1,943 million ($2,626.94
million). On a comparable basis, segment revenues increased 1%
driven by double-digit growth at Lumileds and Automotive whereas
the Professional Lightning Solutions witnessed a low-single-digit
growth. However, Light Sources & Electronics and Consumer
Luminaires exhibited a mid-single-digit decline.
Revenues in the
Innovation, Group & Services
segment increased 1% to €140 million ($189.28 million), driven by
the strong operating performance and increased royalties from the
segment's intellectual properties.
Comparable sales in the growth geographies increased 4% in the
quarter on a comparable basis. The increase was driven by strong
growth in Consumer Lifestyle and Lighting businesses especially in
regions like Central & Eastern Europe, Middle East &
Turkey, India and Africa.
The company's growth markets exclude the U.S., Canada, Western
Europe, Australia, New Zealand, South Korea and Japan.
The abovementioned geographies are classified as mature markets
for which the comparable sales decreased 2% year over year. The
decline was primarily owing to the sluggish performance of the
Healthcare and Lightning sales despite an improvement in the
Consumer Lifestyle sales.
Cash and Balance Sheet
Cash flow from operating activities came in at €487 million
($658.42 million), a significant increase from the prior-year's
figure of €141 million ($190.63 million). The growth was primarily
driven by increase in the accounts payable coupled with the
reduction in the accounts receivables.
During the quarter, the company's cash balance decreased to
€1,435 million ($1,940.12 million) from €2,307 million in the prior
Gross capital expenditures for the quarter were €128 million
($173.06 million) versus €145 million in the year-ago period,
primarily due to lower investment in the Lighting business.
At the end of the quarter, Philips had a net debt of €2.3
billion ($3.11 billion), compared to €2.1 billion at the end of the
prior-year quarter. The increase in the net debt was largely due to
transactions related to treasury shares along with distribution of
the annual dividend.
On Jun 30, Philips announced that it will be initiating the
process to integrate its Lumileds (LED components) and Automotive
lighting businesses into a stand-alone company within the Philips
Group. The process is scheduled to be completed by the
second-quarter of 2015. The company expects the setup cost of about
€30 million to be incurred in the second half of 2014. This
restructuring is a strategic move by the company to attract
investment into the business for driving further growth in LED
luminaries, LED lamps and LED lighting systems and services. The
business will cater to both professional and consumer markets.
Though the headwinds are expected to continue in the rest of the
2014, the company expects an improvement in adjusted EBITA. Philips
remains optimistic about achieving its 2016 targets as per its
Accelerate! transformation program, which was introduced to improve
its overall performance and reduce costs for the company. The
project is expected to be operational till 2017 and has five
streams to enhance customer relevance, change company culture,
reduce overhead costs, streamline the End2End customer value
chains, and reallocate resources to profitable growth
Phillips currently has a Zacks Rank #5 (Strong Sell).
Better-ranked stocks that look promising at the moment include
Franklin Electric Co., Inc.
Emerson Electric Co.
). While Enersys sports a Zacks Rank #1 (Strong Buy), both Franklin
Electric and Emerson Electric carry a Zacks Rank #2 (Buy).
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