Second-Quarter Sales Slide 5 Percent at Philips Healthcare
If there’s one lesson to be learned from last year’s financial fiasco, it should be this: Focus only on matters within our control.
It’s a simple theory, really, and it proves its worth every time life spirals out of control. Executives at Royal Philips Electronics NV tested this theory earlier this year as economic conditions worsened and consumer spending fell precipitously. Rather than battle the irrepressible forces of a free market system, the executives decided to focus on the financial matters over which they had the most control: costs and cash.
Their strategy paid off. While year-on-year sales were down 19 percent in thesecond quarter of 2009, the Dutch conglomerate’s EBITA (earnings before interest, taxes and amortization) improved compared with the first quarter. Healthcare product sales improved in the second quarter as well, boosted by growth in markets outside the United States.
Executives attributed the improvements in the quarter—however slight—to the company’s strict cost management efforts and its adamant focus on cash. Philips’ management team cut thousands of jobs this year, reduced inventory and production in its Lighting division and restructured its Healthcare sector last fall in an effort to reduce operating costs and preserve cash.
“During the quarter, we started to see the positive impact of our strict cost management on our results while continuing to focus on making Philips more efficient,” Gerard Kleisterlee, Royal Philips Electronics president and CEO said. “Our focus on cash is increasingly paying off, highlighted by the fact that cash inflow from operations in the second quarter more than doubled due to lower working capital requirements. We remain cautious about the overall economy and the markets we’re operating in and will not shy away from implementing further cost measures where needed.”
Sales for the second quarter, ended June 28, totaled $7.35 billion (5.2 million Euros). EBITA dropped nearly 4 percentage points, amounting to $165.9 million (118 million Euros), or 2.3 percent of sales. Executives attributed the falling profits to lower sales and EBITA in all business segments except Group Management & Services, which experienced a surge of $126.5 million (90 million euros) in incidental earnings.
Healthcare sales fell 5 percent on a comparable basis due to lower sales of clinical care systems products, healthcare informatics and imaging systems, according to the company’s second-quarter earnings report. The segment’s total sales came to $2.63 billion.
With consumer demand dwindling for its consumer products—particularly in lighting and electronics—Philips has increasingly depended on its Healthcare segment for profit and growth. In an effort to ensure growth—however minimal—during the recession, Philips executives restructured the Healthcare segment last year, integrating the patient monitoring and healthcare informatics divisions. The company also cut jobs in the Healthcare segment, but the moves were not enough to stave off an earnings decline of 30 million Euros compared to the second quarter of 2008.
“Year-on-year declines were seen at imaging systems, clinical care systems and healthcare informatics, while profitability within customer service and home healthcare solutions remained strong,” Philips’ earning report stated.
Net operating capital increased by 448 million Euros compared with the second quarter of 2008. Executives attributed the increase to volatility in foreign markets. EBITA as a percentage of sales fell 2 percent in the second quarter to 8.4 percent.
The Healthcare segment’s EBITA results included restructuring and acquisition-related charges of 24 million Euros, according to Philips. The company expects its Healthcare sector acquisition-related and restructuring charges for the third quarter of 2009 to be about 50 million euros.
“The external environment in which Philips operates remains tough, and has impacted all our businesses in the quarter,” Pierre-Jean Sivignon, Royal Philips’ chief financial officer, told analysts during a conference call. “We are concentrating on the things we can best control, namely cost and cash. We continue to progress our strategic agenda through the further sale of stakes and the acquisition of businesses we feel compliment our portfolio. However, we remain cautious and we will continue our relentless focus on the things we can most influence.”
Mindray Medical Posts Surge in Q2 Gross Profit, Income
Could the recession finally be losing steam?
If second-quarter results from Mindray Medical International Limited are any indication, the “green shoots” of recovery that economists saw sprouting in late spring and early summer may have started to take root and grow. The manufacturer and marketer of patient monitoring devices, diagnostic laboratory instruments and ultrasound imaging systems reported significant increases in gross profit and income for the three months ended June 30.
The Shenzhen, China-based company reported a gross profit of $91.5 million, an 18.9 percent jump compared with the $76.9 million the firm posted in the same period last year. Net income soared 37 percent, going from $24 million in the second quarter of 2008 to $33 million this year. Basic and diluted earnings per share rose 36.3 percent and 38 percent respectively, while overall revenue climbed 9.9 percent to $160.1 million.
“Despite the current macro-economic involvement, especially currency fluctuation and uncertainty in international markets, we achieved better results in almost all aspects of our business and geographical locations in comparison to last quarter,” said Ronald Ede, Mindray’s chief financial officer.
Naturally, the company performed best at home. Domestic revenue amounted to $76 million, a 31.3 percent increase compared with the $57.9 million Mindray reported in the second quarter of 2008 and a 21 percent jump compared with the first quarter of 2009. Revenue generated outside China, however, didn’t fare as well, falling 4.2 percent to $84.1 million.
Chief Operating Officer Jie Liu said U.S. revenue was affected by the slowdown in capital spending and uncertainty over healthcare reform. “Tighter spending controls by hospitals for capital purchase continued, and many hospitals are freezing or greatly reducing their capital spending,” he told analysts during an earnings conference call. “Those that do choose to spend are leaning more toward leasing and other financing options. Also, financial conditions are declining, which makes credit more difficult for them to get.”
Despite the difficulties in generating U.S. revenue during the quarter, Mindray posted double-digit increases in most of its business segments. Sales of in-vitro diagnostic products brought in $40 million for the company, a 12.8 percent increase compared with the $35.5 million this segment generated last year. Executives said the in-vitro diagnostic products segment contributed 25 percent to total net revenue.
Revenue in the medical imaging systems segment grew 16.5 percent to $41.9 million, while sales of patient monitoring and life support products swelled 2.1 percent to $69.1 million. Medical imaging systems sales contributed 26.1 percent to total net revenue, and patient monitoring and life support product sales contributed 43.2 percent, according to the company.
Becton Dickinson Posts 15 Percent Growth in Q3 Profit
Robust sales of drug delivery systems and diabetes care products proved crucial to Becton Dickinson and Company’s bottom line in the third fiscal quarter, helping the firm boost its profits by 15 percent and push revenues to $1.82 billion.
Net income at the Franklin Lakes, N.J.-based manufacturer of laboratory equipment, diagnostic tests and hospital products rose to $341 million, up 14.8 percent compared with the $297.1 million the company reported in the third fiscal quarter of 2008. On a per-share basis, earnings went up 16.4 percent to $1.42 from $1.22 in the comparable period last year.
“We are pleased with our third quarter performance…in particular, the results achieved by our Diagnostics segment and our Medical segment’s pharmaceutical systems and diabetes care units,” said Edward J. Ludwig, Becton Dickinson’s chairman and CEO. “In the face of a challenging global economy, we exceeded our overall expectations in the quarter. We remain confident that our focus on productivity improvements and disciplined expense management, along with our ongoing investments in long-term growth opportunities, will ensure Becton Dickinson’s success.”
Income from continuing operations rose 14.4 percent, going from $295.9 million, or $1.18 per share in last year’s third fiscal quarter to $338.7 million, or $1.38 per share, for the three months ended June 30. Becton Dickinson executives noted that the company’s earnings per share from continuing operations included a tax benefit of $20 million, or 8 cents per share, for tax settlements in various jurisdictions.
Adjusted third quarter income from continuing operations was $318.2 million, with adjusted share earnings swelling 10.2 percent to $1.30.
The results exceeded the expectations of both company management and analysts; nearly a dozen analysts polled by Thomson Reuters expected the firm to post earnings of $1.24 per share.
“Our revenue guidance for [the] Medical [segment] in the second half was to increase about 6 percent from the 2 percent growth we experienced in the first half, currency neutral,” said Vincent A. Forlenza, Becton Dickinson president. “Some analysts and investors were concerned about our ability to guide such a significant increase. But…we expected all business units in medical to improve. In particular, we expected our diabetes care and pharmaceutical systems units to accelerate.”