April 26, 2024
U.S. Market Bright Spot for Signify Despite Overall Sales Drop
Signify reports a double-digit sales decline amid improved profitability and strong cash flow
Signify, the world’s largest lighting company, today disclosed its financial results for the first quarter period ending March 31, 2024, revealing a mixed performance characterized by sales declines but improved profitability and strong cash flow.
Signify's Q1 2024 financials were marred by sales decline but revealed an uptick in net income and cash flows. Signify experienced improved dynamics in its U.S. Professional, OEM and Consumer businesses while the market in China remained soft and the European professional business was substantially below the company's expectations.
Revenue and Profit Margins:
Q1 2024 sales dropped by 12.5% year-over-year to €1.468 billion ($1.57 billion USD), impacted by a 10.1% dip in comparable sales and adverse currency movements. Notably, months after the European ban of certain traditional sources went into effect the company’s LED sales now represent 87% of total sales.
The adjusted EBITA margin contracted from 8.9% to 8.3%, despite the adjusted gross margin climbing from 39.3% to 41.2%. This paradox indicates a cost management win that has seemingly been negated by under-absorption of fixed costs due to reduced volumes.
Segment Performance
During Friday's earnings call, CEO Eric Rondolat repeatedly highlighted the strength of the US team's performance, but, per usual, he opted not to divulge specific granular data or financial results by region.
“The US has been much stronger in terms of performance for us than Europe. So where do we see that? Substantially in indoor – especially Cooper has been performing extremely well. And Cooper is pretty much indoor-focused. We have also outdoor activity, but it's very indoor-focused."
"So we've seen projects, very small size, medium size and some projects of a bigger size being effectively pushed forward successfully, also positioning ourselves from a price standpoint, expanding also the gross margin and the profit margin there quite substantially.”
– Eric Rondolat, CEO, Signify
| Business Unit | Q1 2023 Sales (€M) | Q1 2024 Sales (€M) | % Change Nominal | % Change Comparable |
|---|---|---|---|---|
| Professional | 1,046 | 943 | -9.8% | -7.6% |
| Consumer | 328 | 299 | -8.8% | -5.7% |
| OEM | 114 | 103 | -10.4% | -7.4% |
| Conventional | 186 | 119 | -35.7% | -34.1% |
| TOTAL | 1,674 | 1,464 | -12.5% | -10.1% |
“Nominal”, “comparable” explanation: Signify explains that the nominal percentage change in sales reflects the overall change in revenue, including all effects such as currency fluctuations and acquisitions. In contrast, the comparable percentage change adjusts for these factors, providing a measure of growth that only includes sales from activities or products that were available in both the compared periods, thereby offering a clearer view of organic business performance.
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The Professional business offers LED lamps, luminaires, connected lighting systems and services to customers in the professional segment. This includes the Genlyte Solutions and Cooper Lighting brands in North America.
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The Consumer business offers LED lamps, luminaires, and connected products, including Philips Hue and WiZ, to customers in the consumer segment.
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The OEM business offers lighting components to the industry.
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The Conventional business offers special lighting, digital projection, and lamp electronics.
One-time Hits:
The financials include one-off items like restructuring costs which amounted to €22 million, acquisition-related charges totaling €3 million, and incidental items reached €15 million, primarily due to a one-day foreign exchange loss following the devaluation of the Egyptian Pound by the Egyptian government. These incidents have a substantial, though not debilitating, impact on the bottom line.
Cash Flow and Net Debt:
Free cash flow has impressively surged from €51 million to €80 million, indicative of a robust working capital improvement. Net debt has seen a favorable reduction, bolstering the company’s financial resilience.
Looking ahead:
Signify foresees an adjusted EBITA margin boost of up to 50 basis points and a free cash flow generation of 6-7% of sales, despite an anticipated €150 million hit from restructuring.
While Signify confronts market headwinds and internal restructuring, its financial health, highlighted by a robust increase in net income and free cash flow, showcases agility and a strategic pivot towards efficiency and sustainability. However, the need for vigilant cost control persists as the company strides towards its ambitious targets for 2024.
