Faced with the challenges of the pandemic economy including an ongoing shortage of components that it needs to manufacture its own goods, Signify managed through cost cutting and other measures to report a 123.5% increase in net income for the first quarter to €60 million ($72.1M) as comparable sales nudged up by 3.2% and nominal sales jumped 12% to €1.6B ($1.9B), compared to the same quarter a year ago.
The comparable sales upswing came primarily in the home market for connected digital lighting, as the professional market struggled amid COVID-related lockdowns around the world, CEO Eric Rondolat said today on a conference call with analysts to discuss results for the quarter that ended on Mar. 31. The disparity between home and professional applied to digitally connected products as well as to UV-C disinfection.
A general world situation in which people have been going out less and increasing their spending on home products such as Signify's Hue and Wiz connected lighting brands helped comparable sales in the home division, called Digital Products, jump by 15.7%. Signify said the nominal increase was 8.7% to €575 million ($691.4M; it's not clear why nominal was lower than comparable). Conversely, the protracted hiatus in office life contributed to a decline in the professional segment — Signify calls it Digital Solutions — of 1.8% in comparable sales.
“What we have seen is a very strong traction in our consumer business compared to our professional business, which is still pretty much hit by lockdowns around the world,” Rondolat told analyst George Featherstone of Bank of America Merrill Lynch.
Nominal sales in the professional product shot up 24.1% to €793M ($953.5M), buoyed by the March 2020 acquisition of Cooper Lighting. Most of Cooper's revenue for the first quarter in 2020 came prior to the acquisition by Signify and so were not part of “comparable.”
Both sectors were hit by a worldwide shortage in semiconductors that Signify builds into its finished goods, as Signify's suppliers had cut back on manufacturing capacity and many of them cannot now ramp up fast enough. A lack of availability of shipping containers in Chinese and US ports has exacerbated the difficulties, as did a week-and-a-half of weather-related downtime at Cooper facilities in the US. The ongoing shortage has included microcontrollers, sensors, and other parts and materials, and began before the quarter.
Answering a question about the shortfall from Redburn analyst Josef Zhou, Rondolat described a “very, very tense situation on the supply chain side for us in Q1,” adding that the dearth “touches a fairly big part of what we're selling to our customers.” He said Signify is monitoring about 300 suppliers on a daily basis, and that the company's chief operations officer now has about 180 components on a critical list, up from 130 about a week ago.
“We should see improvements and strong improvements in the second half of the year, and we should be through (it) in the first semester of 2022,” Rondolat said on the call. “But when you bring the supply chain down and then you have to very quickly readjust and put it back in place, it takes a bit of time especially on those components that require very specific machines and very specific automated processes.”
The Signify boss noted component makers can take 6–9 months to get their factories running full tilt again.
He said that the paucity of parts prevented Signify from invoicing about €50M ($60.1M) worth of finished goods in the quarter. “If you translate that in terms of growth it's about 3 percentage points,” he said.
On a related matter, Signify has been dealing with rising costs of raw materials such as steel. But chief financial officer Javier van Engelen told analysts that a “softening” in what been price erosion of Signify's goods has helped to offset that.
Despite the supply complications and various stages of lockdowns around the world, Signify forecast modest sales growth.
“We expect the continued vaccination rollouts and easing of lockdowns to drive an upswing in demand for our professional portfolio in the second half of the year,” Rondolat said. “We are therefore aiming for mid-single digit full-year comparable sales growth and further year-on-year operating margin improvements, driven by our digital businesses.” Signify said in a press release that it anticipates comparable sales growth of 3% to 6% for the full year 2021, and that its adjusted EBITA margin should be 11.5% to 12.5%. It was 10.8% in the first quarter, up from 7.9% a year earlier.
As LEDs Magazine reported in January, Signify's cost cutting includes layoffs.
In one much-watched product area, UV-C disinfection, Rondolat said sales of home products has been lively but sales to the professional market continue to be more challenging, much as was the case three months ago. LEDs hopes to soon provide a further update on Signify's UV-C sales, and on the company's various initiatives to sell “green” products. Rondolat today identified government infrastructure programs in Europe and the US that he said will drive sales.
In addition to Digital Solutions and Digital Products, Signify has a third product segment, “Conventional.” Sales there fell 11.7% to €227M ($273M) from a year earlier, and declined 6.1% on a comparable basis. One of its strong performers was horticultural lighting, in which Signify still offers high-pressure sodium (HPS) illumination to go along with its LED horticultural stable.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]om).
*Updated May 1, 2021 8:10 AM for financial correction in lead paragraph. LEDs Magazine regrets the error.
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