July 26, 2024   

Halfway Through 2024, Signify Sales are down 11.2%

Above: A 3-minute interview with Signify CEO Eric Rodolat on CNBC International

CEO Rondolat: "There is light at the end of the tunnel. The tunnel is sometimes a bit longer than we would like it to be."

 

Signify announced its second-quarter 2024 results, reporting sales of €1.5 billion (approx. $1.65 billion), an operational profitability of 7.9%, and a free cash flow of €51 million (approx. $56 million). The period ended on June 30, 2024. CEO Eric Rondolat attributed the sales decline to challenges in Conventional lighting and continued market softness in Europe and China for the Professional business. However, he noted positive trends in connected lighting and growth in the Consumer business outside China and the OEM business.

The company's operational profitability for the quarter was impacted by the underperformance in Europe and China, resulting in an Adjusted EBITA margin of 7.9%, down from 8.3% in Q2 2023. Despite these challenges, Signify saw an increase in net income to €63 million (approx. $69 million), compared to €45 million (approx. $49 million) in the same period last year.

signify global revenue usa revenue (3).png

Analyst consensus pegged adjusted profit margin at 9%, and the resultant miss on profit margin has impacted the company’s stock price. In intraday trading on the Amsterdam Stock Exchange, Signify N.V. (LIGHT.AS) stock is down 6.04% to €22.70, a decrease of €1.46.

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Looking forward, Rondolat expressed cautious optimism for the second half of the year, particularly for the Professional segment in the Americas and the OEM and Consumer businesses. The company maintains its guidance with an Adjusted EBITA margin expected to be at the lower end of the 10 - 10.5% range and free cash flow generation of 6-7% of sales.

In an interview this morning with CNBC International, Rondolat stated in part, "There is light at the end of the tunnel. The tunnel is sometimes a bit longer than we'd like it to be."

Signify also highlighted its Climate Transition Plan, aiming for net-zero greenhouse gas emissions by 2040, highlighting its commitment to sustainability and long-term growth.

 

Q2 Segment Performance:
Segment 2023 Q2 EBITDA % 2023 Q2 (€M) 2024 Q2 (€M) Q2 % Growth YTD 2023 (€M) YTD 2024 (€M) YTD % Growth
Professional 8.4% 1,059 959 -9.4% 2,105 1,902 -9.6%
Consumer 5.5% 312 297 -4.8% 639 596 -6.7%
OEM 7.2% 108 106 -1.9% 223 208 -6.7%
Conventional 19.9% 160 114 -28.8% 346 234 -32.4%
Other   5 7   9 12  
TOTAL 8.3% 1,644 1,483 -9.8% 3,322 2,951 -11.2%

 

  • Professional: Sales decreased by 9.5% to €959 million ($1.04 billion), with an adjusted EBITA margin of 8.1%. The segment faced challenges in Europe and China but showed improvements in agriculture lighting.
  • Consumer: Sales dropped by 4.7% to €297 million ($324 million). The adjusted EBITA margin improved to 7.1%, driven by COGS savings and positive sales mix.
  • OEM: Sales fell by 2.5% to €106 million ($115 million), but the adjusted EBITA margin increased to 10.9%, mainly due to COGS savings.
  • Conventional: Sales significantly decreased by 28.3% to €114 million ($124 million), reflecting the impact of the fluorescent bans in Europe.

 

U.S. Performance, Election & Possible New Tariffs

In recent years, the U.S. market has comprised about one-third of Signify's global sales. Despite a 7.6% sales decline in the United States, Signify's year-to-date performance in the U.S. is better than its global performance, which saw an overall decrease of 11.2%.

During today's earnings call, CEO Rondolat mentioned that the Americas remained strong in the professional business, with a noted contrast to the softness in Europe and China. He expressed encouragement by the positive traction for professional lighting in the Americas, along with growing demand in connected lighting and other sectors. Rondolat highlighted the expectation of positive traction for professional lighting in the Americas despite a cautious outlook on Europe and China.

Rondolat discussed the company's contingency plans to address potential tariffs on imports from China to the US, which may arise from future election outcomes. He highlighted that the company is exploring production options in India and Indonesia to mitigate these impacts. Additionally, Rondolat mentioned that the company has already been relocating some of its production to Mexico as part of its strategy to manage tariff-related risks.

 

Sales by Country 2023 YTD (€M) 2024 YTD (€M) % Change
Netherlands 223 212 -4.9%
United States 1,124 1,039 -7.6%
China 217 184 -15.2%
Germany 189 160 -15.3%
Other countries 1,569 1,356 -13.6%
TOTAL 3,322 2,951 -11.2%

 

Signify's U.S. business includes Cooper Lighting Solutions, Genlyte Solutions, Advance, Color Kinetics and Philips lamps among other brandds. 

Rondolat also mentioned a non-recurring negative impact of around €150 million ($163.5 million) related to Signify’s restructuring program, which involved significant global layoffs and the reduction of US pension liabilities.

 

F1 Partnership May Lead to More Sports Lighting Projects and Increased Consumer Immersion

Rondolat shed more light on Signify's recently announced partnership with the Mercedes AMG Petronas Formula One team – a strategic move that could enhance their brand presence both on and off the track.

The collaboration, dubbed "Elevating Experiences," aims to bring advanced lighting solutions to consumers at home. This initiative could significantly boost the visibility of Signify's Hue and Wiz brands by offering a more immersive viewing experience for motorsports fans, with lights that change color in sync with the race.

What also stands out is the suggestion that Signify might be positioning itself for a more substantial role in the lighting of global F1 circuits – like those Signify projects in Las Vegas and Singapore. Given the company's substantial financial sponsorship and investment in Formula One, Signify could have the inside track on future projects, leveraging their expertise and established relationships to secure additional projects.

 
Additional Insights from Earnings Call

Rondolat provided several insightful comments during the Q&A session of their 2024 Q2 earnings call, focusing on market dynamics and specific nuances of the company's operations. Here are some key takeaways:

  1. Organic Growth Expectations: Rondolat discussed the potential for improved organic growth in the second half of the year, noting a reduction in the negative impact from conventional lighting and expecting better performance from the OEM and consumer sectors. He highlighted particular strength expected from the agriculture business and positive trends in connected lighting, although he remained cautious about Europe and China due to ongoing market softness.
  2. Margins and Financial Health: On profitability, Rondolat explained that while Q2 margins were below consensus, improvements are expected in the second half of the year due to better top-line performance, continued gross margin discipline, and the impact of cost-saving measures. The company anticipates these factors to significantly influence their financial results towards the end of the year.
  3. Pricing Dynamics: Discussing pricing, Rondolat indicated that price erosion was notable in India and China due to intense competition. He hinted at potential adjustments in pricing to mitigate commodity and transportation cost increases that could positively impact prices in the second half of the year.
  4. Consumer and Professional Lighting Trends: Rondolat also spoke about the consumer lighting business, noting specific growth in connected lighting offers, which aligns with broader digital and smart home trends. He mentioned ongoing efforts to boost the consumer side by leveraging promotional activities strategically timed for peak sales periods.

Signify remains cautiously optimistic about the second half of the year, expecting improved performance in the Americas' Professional segment and steady growth in the OEM and Consumer businesses. The company maintains its guidance for an Adjusted EBITA margin at the lower end of the 10.0-10.5% range and anticipates generating free cash flow of 6-7% of sales.

 

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