EUR 850.00 For Business Accounts Only

Morningstar | Royal Philips Posts Mixed 1Q 2019 Results

Narrow-moat Royal Philips reported in-line first-quarter results with moderate revenue growth, below the full-year guidance. Group revenue and orders from continuing operations grew 2% organically, slower than the 4-6% guidance for the full year, which management reaffirmed. The group EBIT margin expanded by 80 basis points, demonstrating progress toward management's full-year goal of an expansion of 100 basis points. Product mix and productivity enhancements contributed 230 basis points to margin improvement. The main offsetting factors were price erosion and cost inflation. We maintain our EUR 42 fair value estimate. Shares are trading at attractive levels.

First-quarter product demand was mixed. Sleep and respiratory care and image-guided therapy continued the decent growth reported in the fourth quarter. While other products such as monitoring and analytics declined by mid-single digits.

Under the new division definitions, diagnosis and treatment is now the largest division at roughly 40% of group sales. Organic sales grew by 2%, in line with the group. Double-digit growth in image-guided therapy products offset the mid-single-digit decline of the diagnostic imaging segment. The personal health segment's revenue grew by 5%, better than the year-ago quarter and the fourth quarter of 2018, despite "losing" the solid growth from the sleep and respiratory care- to connect care segments under the divisional reshuffle. The connected care segment struggled to grow, with sales declining by 1% in the quarter, weighed down by the mid-single-digit decline in monitoring and analytics.