October 28, 2022   

Signify Cuts 2022 Outlook Citing “Increasingly Volatile Environment”

2022 10 signify cuts forecast q3 q4 2022.jpg

Company expects a challenging finish to the year and negative performance in Q4

 

First, the good news. Global lighting leader, Signify, increased sales to 1.9 billion EUR in its third quarter ended September 30 up 16.3% compared to the same period in 2021. Margins improved compared to the previous quarter and free cash flow was also strong. The company reported strong professional (non-consumer) demand in most markets, particularly in the US and Europe.

Now, the other news. On a comparable sales growth basis – backing out the 2022 acquisitions of Fluence and Pierlite – the company reported comparable quarterly sales growth of 4.3%. The 4.3% comparable sales growth occurred in an environment that saw multiple price increases during the last year – increases that likely compounded to a healthy double-digit percentage price increase realization. 

A common theme of Signify’s Q3 report and today’s investor call was reiterating the current business climate as “increasingly volatile.” The company cited softening consumer markets and currency exchange factors that are creating headwinds for Netherlands-based Signify.

 

Company pulls back on sales growth forecast
And the big news from the quarter: despite a solid comparable sales growth of 5.3% through the first nine months of 2022, the company is now forecasting a 2-3% full year comparable sales growth – a strong indication that the current fourth quarter is not performing well compared to Q4 2021.

During today’s investor call, Signify CEO Eric Rondolat provided more details about what appears to be a soft expectation for the current fourth quarter. He explained that the comparable Q4 baseline in 2021 was extremely strong; boosted by component shortage backlog that had finally broken through coupled with solid performance in the consumer and horticultural segments that are not expected to repeat. Rondolat stated that the combination of the factors “translates to a negative performance in Q4 2022.”

“Faced with an increasingly volatile environment, Signify now expects to achieve a comparable sales growth between 2% and 3% for the full year 2022. This is mainly driven by the uncertain mid-term outlook – especially for the consumer segment and the Chinese market.”

 - Eric Rondolat, Chief Executive Officer, Signify

Today’s stated sales forecast is a departure from Rondolat’s comments during the second quarter earnings call on July 29 when he reiterated Signify’s comparable sales growth guidance of 3-6% for the full year, driven by “continued momentum in the professional segment and its solid order book.”

The news led to Signify's stock (Euronext Amsterdam:LIGHT) to be down 0.80 EUR or -3% during mid-afternoon trading in Europe.

 

Currency Volatility
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.

During the earnings call, Signify’s Chief Financial Officer, Javier van Engelen, explained a financial currency hedge that also provided a negative impact of 70 basis points (0.7%.) When 2022 started, €1 was equivalent to $1.17 USD. When the third quarter ended, the Euro had dipped to $0.98. Today, one Euro is $1.00.

 

Outlook
On the margin side, Signify is targeting the lower end of the range for both the 11.0-11.4% Adjusted EBITA margin guidance and the 5-7% free cash flow guidance. The company explains that it is adapting to a structurally weaker environment in the coming quarters with a focus on measures to control costs and cash flow, in line with Signify's track record.

 

Read Signify's Q3 earnings report »

 

 

 

 




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