Philips' (PHG) Q3 Earnings Down on Supply Chain Constraints

Koninklijke Philips N.V. PHG reported third-quarter 2022 adjusted earnings of €0.25 per share, down 37.5% year over year.

Sales increased 3.7% on a year-over-year basis to €4.31 billion. Comparable sales (including adjustments for consolidation charges & currency effects) decreased 5% year over year, primarily due to headwinds caused by global supply chain challenges, COVID lockdowns in China and the Russia-Ukraine war.

Comparable sales in the Personal Health businesses witnessed mid-single-digit increases on a year-over-year basis. The Diagnosis & Treatment and Connected Care businesses witnessed a double-digit and low-single-digit decline, respectively.

Philips’ comparable order intake decreased 6% year over year in the reported quarter. Diagnosis & Treatment businesses witnessed low-single-digit growth, while the Connected Care business witnessed a double-digit decline.

Sales decreased 4% on a comparable basis in growth geographies. Sales in mature geographies were down 6% 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 1.01% following the third-quarter 2022 results. Markedly, Philips’ shares have declined 65% year to date compared with the Zacks Medical-Products industry’s decline of 47.1%.

Segmental Update

Diagnosis & Treatment revenues increased 6% from the year-ago quarter to €2.29 billion. Comparable sales declined 2% year over year.

Image-Guided Therapy witnessed low-single-digit growth in the reported quarter. However, Ultrasound and Diagnostic Imaging revenues declined due to specific electronic component shortages.

Connected Care business revenues declined 6% year over year to €982 million. Comparable sales decreased 13%, primarily due to the impact of operational and supply chain challenges.

Personal Health’s comparable sales were up 4%, with a high-single-digit decline in Oral Healthcare and Mother & Child Care and low-single-digit growth in Personal Care.

Other segment sales amounted to €135 million, down €24 million on a year-over-year basis.

Operating Details

Gross margin contracted 730 basis points (bps) on a year-over-year basis to 40.1% in the reported quarter.

General & administrative expenses, as a percentage of sales, increased 10 bps on a year-over-year basis to 4.1%. Moreover, selling expenses increased 170 bps to 26.8%. Research & development expenses also increased 380 bps to 14.3%.

Restructuring, acquisition-related and other charges amounted to €303 million compared with €87 million in the year-ago quarter.

Philips’ adjusted earnings before interest, taxes and amortization (“EBITA”) — the company’s preferred measure of operational performance — declined 59.2% year over year to €209 million.

Diagnosis & Treatment’s EBITA margins contracted 360 bps on a year-over-year basis to 13.4%.

Connected Care’s adjusted EBITA loss was €93 million against the year-ago quarter’s adjusted EBITA of €67 million.

Personal Health’s adjusted EBITA margins contracted 150 bps on a year-over-year basis to 14.1%.

Balance Sheet

As of Sep 30, 2022, Philips’ cash and cash equivalents were €776 million and total debt was €8.31 billion. This compares with cash and cash equivalents of €1.26 billion and total debt of €8 billion as of Jun 30, 2022.

Operating cash outflow was €180 million against operating cash flow of €256 million.

Guidance

Philips expects fourth-quarter 2022 comparable sales to decline mid-single-digit. Adjusted EBITA margin is expected to be in the high-single to double-digit range.

Zacks Rank and Stocks to Consider

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

AMN Healthcare AMN, Accuray ARAY and Molina Healthcare MOH are some better-ranked stocks worth considering in the same industry. While AMN Healthcare sports a Zacks Rank #1 (Strong Buy), Accuray and Molina carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare and Accuray are set to report their quarterly results on Nov 3 and 2, respectively. Molina is expected to report its quarterly results on Oct 26.

On a year-to-date basis, AMN and ARAY have lost 3.4% and 57%, respectively. However, shares of Molina have improved 14.6% over the same timeframe.

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