• Installed Base of Connected Lighting Points: 139 million.
• LED-based Sales: 90% of total sales.
• Comparable Sales Decline: 5.2%.
• Adjusted EBITA Margin: 10.5%.
• Net Income Growth: 30%.
• Free Cash Flow Generation: Strong performance noted.
• Professional Business Sales: EUR995 million, with a decline of 4.1% in comparable sales.
• Professional Business Adjusted EBITA Margin: 10.8%, improved by 20 basis points.
• Consumer Business Comparable Sales: Decreased by 1.8% to EUR304 million.
• Consumer Business Adjusted EBITA Margin: Decreased by 120 basis points to 7.6%.
• OEM Business Comparable Sales: Increased by 0.2%.
• OEM Business Adjusted EBITA Margin: Increased by 300 basis points to 15.2%.
• Conventional Business Comparable Sales Decline: 29.4%.
• Conventional Business Adjusted EBITA Margin: Declined by 160 basis points to 19.3%.
• Working Capital Reduction: EUR152 million, from 9.1% to 7.7% of sales.
• Inventory Reduction: EUR158 million.
• Receivables Reduction: EUR114 million.
• Payables Reduction: EUR124 million.

• Warning! GuruFocus has detected 4 Warning Signs with PHPPY.

Release Date: October 25, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Signify NV (PHPPY) grew its installed base of connected lighting points to 139 million, with LED-based sales reaching 90% of total sales.
• The company achieved a robust net income growth of 30%, aided by cost reduction programs and one-off tax benefits.
• Strong free cash flow generation was reported for the quarter, driven by ongoing focus on cash conversion.
• The OEM business delivered a strong performance in Q3, particularly in Europe, with an adjusted EBITA margin increase of 300 basis points to 15.2%.
• Signify NV (PHPPY) continued to advance its sustainability program, with circular revenues increasing to 36.7% and maintaining a strong focus on reducing greenhouse gas emissions.

Negative Points

• Comparable sales declined by 5.2%, with significant challenges in the conventional business and ongoing headwinds in the Chinese market.
• The consumer business saw a decrease in adjusted EBITA margin by 120 basis points to 7.6%, primarily due to higher transportation costs and weak performance in China.
• The conventional business experienced a sharp decline in comparable sales by 29.4%, affected by fluorescent bans in Europe and upcoming bans in some US states.
• Pricing pressure persisted in China, India, and parts of Europe, impacting the overall pricing environment.
• The professional business in Europe remained weak, with softness in Southern and Eastern Europe, and challenges in the distribution channel, retail, and hospitality sectors.

Q & A Highlights

Q: Can you discuss the channel inventory and promotional activities expected in Q4, and how should we think about revenue growth expectations, especially with potential benefits from China's stimulus measures? A: Eric Rondolat, CEO: Inventory levels are not optimal, and we aim to improve working capital by reducing inventory. There are no specific promotional activities planned for Q4 that differ from previous years. We expect sequential top-line improvement, with Q4 performing better than Q3. The China stimulus is expected to have an indirect positive impact on consumer sales, though it's not directly targeting lighting. Professional business may benefit from various country-specific infrastructure stimuli.

Q: Regarding the phasing of savings, why was the indirect cost tailwind lower in Q3 compared to earlier quarters, and what should we expect in terms of savings in Q4? A: Zeljko Kosanovic, CFO: The cost reduction plan is on track, with 2/3 of the EUR200 million gross savings expected in 2024. Savings will accelerate in Q4, contributing to profitability improvements. Full savings will be realized by 2025.

Q: How do you view the pricing trajectory into 2025, considering current negative pricing trends and channel inventory normalization? A: Eric Rondolat, CEO: Pricing is linked to bill-of-material costs, which have seen pressure from rising component prices. However, gross margin remains resilient. We expect less price erosion moving forward, with potential cost reductions in bill-of-materials supporting gross margin stability.

Q: Can you elaborate on the professional business weakness in Europe and any specific segments affected? A: Eric Rondolat, CEO: Europe remains a detractor, though performance improved from Q2. The trade channel is challenging, with high volatility across regions. Public projects are delayed due to slow funding processes. Private sector projects show increased requests but delayed execution. We remain cautious about a quick recovery in Europe.

Q: What are your capital allocation priorities as you deleverage, and how do you view potential acquisitions? A: Zeljko Kosanovic, CFO: We will review and update our capital allocation priorities in January, considering M&A and shareholder returns, including share buybacks. We aim to balance deleveraging with strategic growth opportunities.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.