Koninklijke Philips' (PHG) Q2 Earnings Up Y/Y, Sales Flat

Koninklijke Philips N.V.PHG reported second-quarter 2018 adjusted earnings of €0.30 (24 cents per share), up 50% from the year-ago quarter.

Sales were €4.29 billion ($5.11 billion) flat on a year-over-year basis. Comparable sales (includes adjustments for consolidation charges & currency effects) grew 4%, reflecting high-single-digit growth in the Diagnosis & Treatment businesses. Growth in both Connected Care & Health Informatics and Personal Health businesses was at a low-single-digit rate.

The company's comparable order intake increased 9% year over year, driven by double-digit growth in Diagnosis & Treatment and mid-single-digit growth in the Connected Care & Health Informatics.

Sales increased 6% on a comparable basis in growth geographies, driven by double-digit growth in Middle East & Turkey, high-single-digit growth in Latin America and low-single-digit growth in China.

Sales in mature geographies increased 3% on a comparable basis, due to high-single-digit growth in other mature geographies, and low-single-digit growth in both North America and Western Europe.

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

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

Segment Details

Diagnosis & Treatment revenues increased 5.4% from the year-ago quarter to €1.76 billion. Comparable sales grew 8%, driven by double-digit growth in Image-Guided Therapy, high-single-digit growth in Ultrasound and mid-single-digit growth in Diagnostic Imaging.

Sales benefited from strong growth in Access CT, IQon Spectral CT and Vereos Digital PET/CT systems. Azurion platform and other devices portfolio reported strong double-digit sales growth.

On a geographic basis, double-digit growth in China, Latin America and Central & Eastern Europe were witnessed. Mature geographies grew at high-single-digit rate, reflecting double-digit growth in other mature geographies, and mid-single-digit growth in North America and Western Europe.

Connected Care & Health Informatics revenues were down 3% to €743 million. However, comparable sales climbed 2%, driven by high-single-digit growth in Healthcare Informatics and low-single-digit growth in Monitoring & Analytics. However, Therapeutic Care declined at low-single-digit rate.

On a geographic basis, mature geographies grew low-single-digits, primarily due to mid single-digit growth in Western Europe and other mature geographies, while North America remained flat on a year-over-year basis. Growth geographies increased at high-single-digit rates, reflecting double-digit growth in China and India, and mid-single-digit growth in Middle East & Turkey.

Personal Health sales decreased 3.8% year over year to €1.69 billion. However, comparable sales inched up 2%, driven by high-single-digit growth in Sleep & Respiratory Care and low-single-digit growth in Personal Care. Both Health & Wellness and Domestic Appliances sales remain unchanged on a year-over-year basis.

Philips' benefited from strong demand for DreamWear Full Face mask. Moreover, the company launched the connected Dream Family solution in China.

On a geographic basis, growth geographies increased low-single-digit, driven by double-digit growth in Middle East & Turkey and India, partly offset by a high-single-digit decline in China. Mature geographies showed low-single-digit growth, reflecting double-digit growth in other mature geographies and low-single-digit growth in North America, partly offset by a low-single-digit decline in Western Europe.

Other segment sales decreased 8 million to €88 million, due to lower license income from Lighting.

Operating Details

Philips' adjusted earnings before interest, taxes and amortization (EBITA) - the company's preferred measure of operational performance - was €482 million, up 9.8% from the year-ago quarter.

Adjusted EBITA margin expanded 100 basis points (bps) on a year-over-year basis to 11.2%, benefiting from growth and operational improvements.

The growth was strong across all the segments. Diagnosis & Treatment, Connected Care & Health Informatics and Personal Health EBITA margins expanded 180, 40 and 80 bps, respectively.

Acquisitions Expanding Portfolio

During the quarter, Philips' acquired EPD Solutions, a developer of image-guided treatments for cardiac arrhythmia.

The company also acquired Remote Diagnostic Technologies (RDT), a leading provider of advanced monitoring, cardiac therapy and data management solutions that targets the pre-hospital market.

Management stated that RDT's portfolio expands Philips' Therapeutic Care business and strengthens its dominant position in the resuscitation and emergency care market, which is currently worth almost €1.4 billion.

Partnerships Driving Clientele

Philips inked seven new long-term strategic partnership agreements across the United States, Europe and Africa.

Philips partnered with Jackson Health System to provide enterprise patient monitoring as a service, during the quarter.

The company launched its first tele-intensive care eICU program in Japan, through a partnership with Showa University. The tele-intensive care eICU program has already achieved significant success in the United States, the United Kingdom, Australia and the Middle East.

Philips also inked a partnership with Laboratory Corporation of Americas Holdings LH , popularly known as LabCorp, to fully digitize pathology workflows for the latter's clinical laboratory and drug development services.

Balance Sheet & Other Details

As of Jun 30, 2018, Philips' cash and cash equivalents were €1.62 billion compared with €1.98 billion at the end of the previous quarter. The company's long-term debt increased to €3.69 billion as compared with €3.24 billion in the last quarter.

During the reported quarter, the company achieved procurement savings of €67 million, while other productivity programs resulted in savings of €38 million.

Meanwhile, net cash flow generated from operating activities came in at €130 million compared with net cash flow of €73 million in the year-ago quarter.


Philips expects the U.S. healthcare market to grow in the low to mid-single digit rate. Western Europe is expected to grow at modest low-single-digit rate. In China, management expects high single-digit market growth.

For 2018, Philips reiterated comparable sales growth of 4-6%. The company anticipates adjusted EBITA margin to improve around 100 basis points.

Management expects strong growth from Connected Care & Health Informatics business and to continue recovery in the Personal Health business segment for the second half of 2018.

The growth in the Personal Health business is expected to be driven by the launch of OneBlade in additional markets within the Americas, Asia Pacific and Eastern Europe.

Philips expects free cash flow between €1 billion and €1.5 billion for 2018.

Zacks Rank and Stocks to Consider

Currently, Phillips has a Zacks Rank #3 (Hold).

Garmin GRMN and Trimble TRMB are stocks worth considering in the same sector. Both the stocks have a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks Rank #1 (Strong Buy) stocks here .

Both Garmin and Trimble are expected to report on Aug 1.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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