Philips on Monday reported 7% comparable fourth quarter sales growth, causing revenue to come in slightly above the consensus analyst estimate. Fourth-quarter revenue of €6B beat estimates by approximately €40M.
All three reporting segments — diagnosis and treatment, connected care and personal health — outperformed analyst expectations. While COVID-19 tailwinds made connected care the strongest performer in the quarter, Philips CEO Frans van Houten told investors the anticipated normalization of sales as the coronavirus crisis abates is expected to drag on revenue in 2021.
- Nonetheless, Philips is set to expand its connected care offering through the acquisitions of BioTelemetry and Capsule Technologies. Van Houten said the planned divestment of its domestic appliances business to be completed in the third quarter of 2021 will provide fresh capital, enabling the company to "continue to be active on the M&A front" after striking the two deals over the past month worth more than $3.4 billion.
Connected care powered Philips’ growth in the fourth quarter. Philips attributed the 24% comparable growth in connected care sales to coronavirus-fueled demand for products sold by its monitoring, analytics, sleep and respiratory care sub-segments. In particular, the company reported strong demand for remote patient monitors and telehealth solutions.
Several geographies contributed to the connected care growth. Philips named North America and Western Europe, plus growth geographies such as Latin America, as regions that experienced double-digit sales increases.
China was the relative laggard with high-single-digit fourth quarter growth. Overall, van Houten was "not very happy" with Philips' performance in China in 2020, the CEO told investors on a fourth quarter results conference call, but he thinks the company is positioned to do better this year.
The global connected care growth mitigated weaknesses in other parts of Philips’ business. Sales at Philips’ diagnosis and treatment reporting segment rose 1% on a comparable basis, although that headline figure masks variation between subsegments and geographies.
Philips reported high-single-digit growth in diagnostic imaging, offset by a mid-single-digit decline in image-guided therapy and ultrasound. Management attributed the fall in image-guided therapy and ultrasound sales to the COVID-19-triggered postponement of installations and elective procedures. The geographic picture was similarly mixed, with growth in Western Europe and, in particular, China mitigating a mid-single-digit decline in North America.
Overall, Philips' business recovered in the second half of the year, causing 2020 sales to end up 3%. Philips also expects to achieve low-single-digit sales growth in 2021.
Van Houten said the connected care and diagnosis and treatment segments had a "strong year end order book." However, the anticipated normalization of sales of connected care devices as the coronavirus crisis abates is expected to drag on revenue in 2021.
For now, van Houten said "it's clear that the COVID-19 pandemic is far from over."
Still, Philips will continue to face headwinds related to coronavirus this year. Van Houten said elective procedures are down 20% to 30%. Yet, he framed those figures in a positive light, noting that elective procedures fell 70% in April in the first phase of the pandemic. Van Houten expects elective procedures to rebound quickly as COVID-19 cases fall.
Overall, van Houten sees reasons to be optimistic. He said Philips saw hospitals postpone, but not cancel orders, giving it a pipeline of business that continued to grow throughout the pandemic. The CEO identified the 8% growth in precision diagnosis orders and the 25 long-term strategic agreements with hospitals seen in the fourth quarter as positive signs.
Nonetheless, van Houten said Philips continues to see "uncertainty" worldwide related to the impact of COVID-19.