Philips Reports Q2 Earnings Beat, Sending Shares Higher

Koninklijke Philips (PHG) has reported its second-quarter earnings results with a Q2 net profit of 208 million euros beating Street estimates by 116 million euros. 

Shares in Philips traded 6% higher in Monday’s pre-market following the announcement.

The Dutch medical-technology company stated that second-quarter sales fell to EUR 4.40 billion from EUR 4.67 billion a year before, but still beat analyst estimates of EUR 4.35 billion. Philips’ comparable sales saw a decline of 6% against forecasts of a 7.1% decrease. Compared to Q2 2019, net income decreased by EUR 36 million.

Philips attributed the results to the impact of the pandemic which led to a drop in consumer demand and delays of installations in hospitals including elective procedures. This resulted in a 19% comparable sales decrease for its Personal Health division and a 9% decline in its Diagnosis and Treatment unit. However, its Connected Care division reported comparable sales growth of 14%.

In terms of cost savings, the report highlighted a procurement savings of EUR 57 million with overhead and other programs related to productivity at a savings of EUR 51. Philips states that it is “on track to deliver over EUR 400 million productivity savings for 2020 and EUR 1.8 billion productivity savings for the group for the 2017-2020 period.”

The company is also aiming for improvement in adjusted earnings for taxes, interest, and amortization margin.

Philips CEO Frans van Houten was optimistic about the outlook for its business units, saying on July 20, “We expect to return to growth and improved profitability for the group in the second half of the year.” He highlighted that if elective procedures normalize and consumer demand returns to growth then “consequently, for the full year 2020 we continue to aim for a modest comparable sales growth.”

Morgan Stanley analyst Michael Jungling maintained a Buy rating on July 9 and raised his price target from EUR 41 to EUR 45 which implies 3% upside potential. Meanwhile, on June 24, Kepler Capital analyst Maja Pataki reiterated a Hold rating and a price target of $49.29 (1% downside potential). Overall the stock shows a Moderate Buy Street consensus. The average analyst price target stands at $50.36 suggesting 1% upside potential, with shares already up 4% year-to-date. (See Philips’ stock analysis on TipRanks).

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