July 29, 2022
Takeaways from Signify’s Second Quarter
Comparable sales rose 5.1%. Strong currency exchange tailwinds add 6.6% to top line.
NETHERLANDS – On Friday, the world’s largest lighting company, Signify, reported its second quarter financial performance. Comparable sales versus the same quarter last year were up 5.1% to €1.84 billion. Adjusted profit margins dipped from 10.9% a year ago to 9.5%.
During the earnings call and a subsequent interview with CNBC Europe, Signify CEO Eric Rondolat gave an overview of the global business which included statements about logistics, inflation, pricing and China.
Net income rose to €248 million vs. €82 million one year ago. LED-based sales were 84% of total sales.
Signify warned of a decline in its profit margins this year due to supply chain delays and negative foreign exchange impacts, sending shares down by around 8% in early Friday trading on the Euronext Amsterdam Stock Exchange.
Here are more takeaways:
Overall comparable sales growth of 5.1%
-
Digital Solutions (the professional segment that includes Cooper Lighting, Genlyte Solutions and Color Kinetics among other brands) saw organic sales growth of 11.6% -- and with the recent acquisitions of horticultural lighting maker, Fluence, and Australian C&I lighting brand, Pierlite, the entire segment grew 24.4% nominally versus the same period in 2021.
-
Digital Products (which includes commercial and consumer lamps among other products) saw comparable sales growth of 2.6%.
Logistics
On the logistics side, Rondolat believes that Signify has "seen the bottom" of the logistics challenges, and believes that it will take more time – into the first half of 2023 – to get back to normal with logistics.
Inflation and Pricing
Rondolat explained "inflations of all different nature are impacting our operating margin" and that the components situation is mixed.
Mechanics, metals, plastics, optics: “We think there is a potential for us – after big increases in past quarters – to come back to a situation where we should be able to bring some of the costs down.” Rondolat went on to explain that some suppliers have committed to cost decreases and that those impacts should be seen in the fourth quarter.
Rondolat stated, “we also believe that we should see in the second half of the year an ease on the customer bill of material…after the big increases that we've seen in the past years.”
Currency Volatility
Currency movements had a positive impact on sales and a negative impact on profits.
-
As a global company, headquartered in Netherlands, world currency volatility has had an impact on Signify’s financials. The company transacts 39% of sales in U.S. dollars, 24% in Euro and 7% in Chinese Renminbi.
-
The company reported a financial exchange sales impact of +6.6%, mainly from US dollar appreciation. Signify saw a negative currency effect from the appreciation of the Chinese Yen, which dragged profits.
-
During the earnings call, Signify’s Chief Financial Officer, Javier van Engelen, stated that the net effect of the weakening of the Euro compared to those two currencies is a negative.
-
When 2022 started, €1 was equivalent to $1.17 USD. Six months later when the second quarter ended, the Euro had dipped to $1.05. Today, one Euro is $1.02.
Real Estate
Just about every quarter Signify refers to its continued rationalization of the company's real estate portfolio. In the second quarter, the company received €194 million in proceeds from real estate sales but didn’t share details about specific properties that were divested.
Diversity Equity & Inclusion (DE&I)
Signify’s recently published DE&I report cited 25% of women were in leadership roles at the end of 2021. Halfway through 2022, that number has ticked up to 27%.
China
China has been a retracting market for Signify. Rondolat explained that business has been very volatile with Chinese businesses opening and closing amidst lockdowns. Rondolat expects to have an improving situation in China in the second half of the year.
Outlook 2022
-
Signify maintains its comparable sales growth guidance of 3-6% for the year, driven by “continued momentum in the professional segment and its solid order book.
-
The company revised its Adjusted EBITA margin guidance for the full year to 11.0-11.4%, reflecting the lower margin performance in Q2 2022.
-
Signify also revised its 2022 free cash flow guidance to 5-7% of sales, including the proceeds from real estate divestments. Signify expects to return to the target of over 8% as soon as supplier lead times ease and no longer require the company to carry higher inventory.
