Signify shares fell Friday following its quarterly earnings report, which saw sales decline year-on-year.
The company reported sales of EUR 1.47 billion, representing a nominal sales decline of -12.5%. Meanwhile, adjusted EBITDA margin came in at 8.3% and a free cash flow was EUR 80 million.
While the company saw improving dynamics in its US Professional, OEM and Consumer businesses, the market in China remained soft and the European Professional business was "substantially below" expectations, explained the company's CEO Eric Rondolat.
"Our operating margin was resilient, thanks to gross margin expansion as price dynamics normalize, compensated by bill of material improvements. We also began to see the positive impact of our cost reduction program and strong free cash flow generation, as we continued to improve our working capital," stated Rondolat.
Reacting to the report, analysts at Citi said that while Signify's sales and EBITA miss might drive an initial negative reaction, "there are some signs of improving momentum into 2024."
"We had highlighted improved disclosure as a potential share price catalyst, and while Signify has now reported under its new divisional structure, the pro-forma 2023 comparables now won't be available until next quarter. We continue to believe however that Q1 marks the low point for earnings," said the bank, maintaining its Buy rating on the stock.
Analysts at Morgan Stanley said the key debate "will be the cadence of delivering full year guidance of an improvement in EBITA margin, and benefits from cost reduction program.
"The organic sales decline that was getting less negative throughout 2023 (4Q23 at -7.7% yoy) has now seen a steeper decline at 10.1% YoY in 1Q24, suggesting little improvement of end markets. Against this backdrop, investors will look for more confidence on how to deliver higher YoY EBITA margin," they added.