October 25, 2024   

Signify’s U.S. Market Steady as Global Sales Dip 7%

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Boosted by cost-cutting, Signify’s net income rises in latest quarterly results

 

Signify reported third-quarter results for 2024, revealing a decline in sales to €1.537 billion (approximately $1.66 billion), driven by weak demand in China and a challenging professional market in Europe. Despite the revenue drop, the company’s net income rose significantly to €108 million ($116 million), up from €83 million in the same period last year.  This reflects expected benefits to the bottom line as the company's previously announced cost reduction program delivers results.

The report highlighted additional strategic challenges as traditional lighting technologies continue to decline, with conventional lighting sales down 29.4% compared to Q3 2023. Yet, sustainability commitments showed promising progress, surpassing their 2025 target, marking a noteworthy achievement in their environmental goals. Performance in North America remained more robust than in Europe or China, driven by a stable pricing environment and disciplined cost control, with expectations for continued stability in the region.

Decline in Sales:

Total sales declined by 6.8% to €1.537 billion (approximately $1.66 billion), with a nominal sales decline of 5.2%. The sales drop was attributed to ongoing weaknesses in the Chinese market and challenges in the European professional business segment.

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Increased Net Income:

Signify reported a net income of €108 million (approximately $116 million), a significant increase from €83 million (approximately $89 million) in Q3 2023. This reflects effective cost management and operational resilience despite sales declines.

Strong Free Cash Flow:

The company generated €119 million (approximately $128 million) in free cash flow, although lower than €152 million (approximately $164 million) in the previous year. This performance indicates a robust focus on cash conversion, essential for maintaining liquidity during challenging market conditions.

Reduced Operational Profitability:

The adjusted EBITA margin decreased to 10.5%, down slightly from 10.7% in Q3 2023. Although the margin remains relatively stable, the slight decline highlights potential pressure on profitability from ongoing sales challenges.

Conventional Business Decline:

As expected, the Conventional business segment experienced a decline, with this quarter showing a 29.4% drop in comparable sales. This trend underscores a significant strategic challenge, as traditional lighting solutions lose market relevance amid the industry’s shift toward connected and LED technologies.

Sustainability Commitments:

Progress towards sustainability targets is noteworthy, with circular revenues reaching 36.7%, surpassing their 2025 target of 32%. Such achievements align with the company’s goals relating to environmental, social, and governance (ESG) factors.

 

Earnings call comments on American markets:

The earnings call for Signify's Q3 2024 was led by CEO Eric Rondolat and provided the following insights into North American and Americas region performance:

Performance in the Americas:

  • The Americas outperformed other regions, notably Europe and China, in Q3, and Signify expects similar results for Q4. Notably, Rondolat mentioned that India outperformed the U.S.
  • North America’s pricing environment remained stable, contrasting with price pressures in regions like China, India, and Europe.
  • The OEM business showed resilience despite shifts, such as customers insourcing in the U.S., indicating recovery and stabilization in North America.
  • Signify highlighted cost discipline and gross margin improvement, with expected further stability in Q4 margins and cost reductions for the region.

Regulatory Impacts and Conventional Lighting Decline:

  • Upcoming fluorescent lighting bans in U.S. states like California, effective January 1, 2025, are expected to drive a continued shift away from conventional lighting products in North America.

Strategic Comments Related to U.S. and Global Trade:

  • While tariffs were discussed broadly, Signify noted their preparedness with contingency plans for shifts in U.S.-China trade policies. This includes potential increases in manufacturing in other countries, like India and Mexico, as well as an alternative production strategy to address U.S. demand if tariffs increase further.

 

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Looking ahead, Signify plans to prioritize its transition to connected and specialty lighting, which now represents approximately 30% of its business, while continuing cost reduction initiatives and bolstering cash flow. The company maintains guidance for an adjusted EBITA margin at the lower end of the 10.0-10.5% range and expects cash flow generation of 6-7% of sales for the full year.

 

 

 




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