Analyst Note| Javier Correonero |
Narrow-moat Philips reported a very strong first-quarter performance that exceeded company-compiled consensus. Philips achieved adjusted EBITA of EUR 359 million, equivalent to an 8.6% margin, a significant improvement from 6.2% in the same period last year and also compared with previous years. Margin expansion was primarily driven by robust organic sales growth of 6% year over year, which resulted in operating leverage and productivity enhancements that resulted in total savings of EUR 190 million and supply chain improvements that enabled double-digit growth in diagnostics and treatment. We are pleased with Philips' cost-cutting efforts; the company has already laid off 5,400 workers out of its target of 10,000. On the supply chain front, we believe easing will come from overall global improvements rather than company-specific action as Philips has struggled with supply chain management for years. We maintain our EUR 25 fair value estimate.