For the second consecutive quarter, Signify has downgraded its sales and profit outlook for the year. Worryingly for the company, it cited weakness in indoor professional lighting, which had been a strength. It also noted a worsening slowdown in China, and difficulties in OEM channels.
Unlike last October’s revision, the latest lowering came in the form of a warning issued ahead of quarterly results. Signify plans to announce fourth quarter and year-end 2022 numbers on Jan. 27, but said today that key figures would fall below previous expectations, as quarterly sales will slip.
“During the fourth quarter, Signify experienced a stronger than anticipated deterioration of its business in China due to ongoing COVID-related disruptions, a much lower growth in the OEM channel and a weaker indoor professional business than expected,” the company said in a press release. “Signify now expects a comparable sales decline of 8.8% for the quarter, resulting in a comparable sales growth of 1.2% for the full year 2022, compared to the previous range of 2–3% for the year.”
At 1.2%, the anticipated growth in comparable sales is well below the 3–6% range that Signify had been anticipating throughout the first half of the year. It had lowered that range to 2–3% in its Oct. 28 third-quarter results, citing continued softness in the consumer market and in China.
In both previous quarters, however, Signify reported liveliness in its Digital Solutions division, which includes the market for indoor professional lighting, among other sectors. While the division’s horticulture segment slipped, indoor lighting had looked strong, buoyed in part by renewed market interest in energy-efficient lighting.
So the reference in its latest financial warning to a “weaker indoor professional business” represents at least a temporary reversal in fortunes there.
Some industry observers believe that the LED lighting industry in general could benefit in the upcoming months from a European ban on fluorescent lighting that takes hold in September.
This week’s warning also included profits.
“While the gross margin stabilized, fixed costs did not keep pace with lower sales volumes,” the company said. “Signify therefore expects an adjusted EBITA margin of approximately 10% for both the fourth quarter and the full year 2022. This compares with the previous full-year guidance of the lower end of the 11.0–11.4% range.”
Signify said last quarter that its cost reduction plans include negotiating better prices with its suppliers.
On the positive side, the financial press release reported an easing in certain logjams.
“During the final quarter, Signify significantly reduced its inventory, leading to a better than expected working capital performance,” Signify stated. “The company now expects to report a full year 2022 free cash flow of approximately €445 million or 5.9% of sales, compared to the previous guidance of the lower end of the 5–7% range.”
Signify is expected to provide more details on Jan. 27.
MARK HALPER is a contributing editor for LEDs Magazine, and an energy, technology, and business journalist ([email protected]).
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