Earnings Scorecard: Philips Group (Koninklijke Philips NV) 2017Q4
- Philips Group reported strong earnings but missed slightly revenues.
- Philips Group’s turnaround strategy seems to be gaining momentum.
- The company is maintaining its steady growth as management transforms the company.
Philips Group reported a mixed quarter which was still good enough for the company to close 2017 in a stronger position. Philips Group reported a strong earnings number of €0.50/share and revenue of 5.3 billion which was a slight miss for Wall Street analysts. The new health-focused conglomerate still reported 5% comparable sales growth and generated €17.8 billion for the year. Philips Group had to take a €72 million tax charge on its U.S. business units because of the new corporate tax law which was passed by the Trump administration.
The company’s turnaround strategy from being involved in televisions and lighting to being a healthcare-focused company is now bearing fruit. Philips Group’s healthcare portfolio reported a 5% year-over-year growth and a 1.9% increase in margins to 15.3% in terms of earnings before interest and taxes (EBITDA). The company is slowly decreasing its stake in Philips Lightning (a stand-alone business the company spun off in 2016) and using those funds for M&A as management bolsters its healthcare segments. The company’s acquisitions of Volcano Corp. and Spectranetics have bolstered Philips Group’s footprint in India, and Canada, and also produced a lot of synergy cost savings for the company. Management expects to produce €1.2 billion in cost savings over the next two years.
Management gave a good outlook which shows the company’s steady growth path. Over the next two years, Philips expects sales growth of 4–6% over the next two years. Philips Group expects to reach €20 billion in sales by the fiscal year 2020. In terms of free cash flow, Philips expects to generate approximately €1–1.5 billion in free cash flow annually. The free cash flow will be used to restructure the company’s capital as well as return cash to shareholders in the form of dividends which is currently at €0.80/share. Overall, this was a strong close to 2017 by Philips Group and the company seems to have a good long-term strategy. The stock recently sold off from its 52-week high of $42.35 when the market sold off and has recovered from the sell-off a bit and is currently in the $37–38 range. I would be a buyer of the stock if another market sell-off occurs.
Grade: B.
Disclosure: Cresco Investments is long Philips Group [Koninklijke Philips NV], Stock Ticker: PHG
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: This article is intended for information, engagement & entertainment purposes only, and is not to be construed as investment advice or direction. Investors are strongly encouraged to perform due diligence and/or consult with their financial advisor.
