Signify reported higher third-quarter earnings despite another sales decline, with a €28 million U.S. tariff refund benefit lifting profitability. Meanwhile, the company warned of continued weakness in Europe and softening U.S. project demand.

Sales totaled €1.367 billion, down 2.9% from the prior year. Comparable sales, which exclude currency movements and consolidation changes, fell 3.4%.

Adjusted EBITA increased to €145 million from €136 million. The adjusted EBITA margin rose to 10.6%, up from 9.7% a year earlier. However, excluding the tariff refund benefit, the margin was 8.5%.

Net income rose to €88 million from €76 million, while free cash flow increased to €118 million from €71 million.

Tariff Refund Drives Earnings Improvement

The tariff refund is central to understanding Signify’s results.

The company recognized refunds of previously paid U.S. import duties during the quarter. After supplier settlements, customer credits, and related employee incentive accruals, the net benefit totaled €28 million.

That contribution added approximately 2.1 percentage points to the adjusted EBITA margin. Without it, adjusted EBITA would have been approximately €117 million, below the €136 million reported a year earlier.

Nevertheless, Signify reported some underlying progress. Positive pricing and disciplined manufacturing cost management slightly improved the adjusted gross margin excluding the refund, despite higher input costs.

CEO As Tempelman said the company continued executing its strategy while managing weak demand, supply constraints, and cost pressure.

Professional Business Holds Up Better

Professional remained Signify’s largest business, generating €921 million in sales. Reported sales declined 0.7%, while comparable sales decreased 1.5%.

The company said U.S. and Rest of the World project business remained resilient during the quarter. However, its stock-and-flow business remained soft across most geographies. Agricultural lighting performed strongly during its seasonal peak.

Professional’s adjusted EBITA increased to €115 million from €97 million. Its margin reached 12.5%, including a tariff refund contribution of approximately two percentage points.

Excluding that benefit, underlying profitability remained stable year over year. Gross margin improvements and fixed cost reductions offset lower sales volumes.

U.S. project activity supported third-quarter performance, but Signify now sees that demand softening.

Consumer Faces Retailer Destocking

Consumer sales fell 6.1% to €283 million, with comparable sales down 5.3%.

Weaker connected lighting sales drove much of the decline. Within Philips Hue, retailer destocking continued to weigh on orders. Signify said this created a disconnect between retailer purchasing and underlying consumer demand.

Growth in luminaires and India partly offset those pressures.

Consumer adjusted EBITA declined to €19 million from €27 million. Its margin fell to 6.8%, despite a tariff refund contribution of approximately 2.3 percentage points.

Lower volumes reduced the business’s ability to absorb fixed costs. Signify said it is taking action to improve productivity and reduce those costs.

OEM Improves Profitability as Sales Decline

OEM sales totaled €88 million, down 5.5% on a reported basis and 6.7% on a comparable basis.

Despite continued market softness, pricing improved across regions. Gross margin expansion and cost savings increased adjusted EBITA to €5 million from €4 million. The margin rose to 5.9% from 4.7%.

Conventional sales declined 11.5% to €67 million. Comparable sales fell 12.2%, reflecting the continued structural decline in general lighting.

However, specialty lighting grew. Conventional’s adjusted EBITA margin reached 21.3%, including a tariff refund contribution of approximately 5.5 percentage points.

Cost Savings Accompany Lower Headcount

Signify’s cost reduction program generated €37 million in gross savings during the quarter.

However, employee incentive accruals, salary inflation, and higher variable expenses offset those savings. Adjusted indirect costs consequently increased to €451 million from €439 million.

The company ended September with 24,961 full-time equivalent employees, down 3,103 from a year earlier. Signify attributed the reduction to lower production volumes and its restructuring program.

Outlook Points to Continued Pressure

Signify maintained its full-year adjusted EBITA margin guidance of 7.5%–8.5%. It expects to reach the higher end including tariff refunds received through the third quarter, and the lower end excluding them.

Free cash flow guidance remains 6.5%–7.5% of sales.

The company expects fourth-quarter comparable sales performance to be in line with, or slightly below, the third quarter. Continued Professional Europe weakness, softening U.S. project demand, and a stronger prior-year comparison in Consumer underpin that outlook.

Signify’s quarter shows progress in cash generation and selected businesses. However, the tariff refund accounts for the increase in adjusted earnings, while a sustained sales recovery remains elusive.

My Take

When I interviewed CEO As Tempelman this past March at Light + Building, I asked him directly. Would Signify invest more in the specification market?

“Absolutely” Tempelman replied, before expanding on the idea.  “We need to re-engage with the ecosystem—specifiers, distributors, system integrators, agents. That’s the part of the market where relationships matter.”  

While your humble editor has been told that Signify increased its investment in the specification market, I have not received specific details. Cooper Lighting Solutions and Color Kinetics maintain respectable positions with specifiers. Genlyte’s presence appears more limited,giving Genlyte considerable opportunity to strengthen its relationships with specifiers and grow its share of that market.

The stock price, which has taken a beating over the past six months, is up 6% on this news.

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