Royal Philips NV fell after a decline in new orders and ongoing uncertainties on costs related to a product recall overshadow a boost to the medical equipment maker’s full-year forecast.
Comparable order intake dropped 8% during the second quarter from a year ago, Philips said Monday. The shares fell as much as 7.7%, the biggest drop since October last year, and were trading down 6.4% in Amsterdam as of 9:10 a.m. local time.
Philips had “fewer orders coming in then we would like,” Chief Executive Officer Roy Jakobs said in an interview. New healthcare licensing requirements in Russia contributed to the decline he said.
Philips, which may see more fallout from its costly recall of sleep apnea devices, still beat analyst forecasts for second-quarter earnings and raised its outlook for comparable sales growth. The company has set aside around €1 billion ($1.1 billion) for a recall of around 5.5 million devices to treat sleep apnea and booked additional provisions of €575 million as part of a planned settlement in the US to compensate patients.
Philips is a defendant in several class-action lawsuits and individual personal injury claims in the US as consumers claim its machines use foam that can degrade and be ingested, possibly presenting a cancer risk.
Job Cuts
During the three months through June, the company boosted sales and returns on double-digit growth in China and “tough measures like taking jobs out,” said Jakobs, who took the company’s reins in October and slashed 10,000 jobs. The recall of breathing devices for sleep apnea remains the biggest priority, he said.
Philips shares are still up 45% so far this year. Still, the stock is under pressure after sliding following the firm’s first recall of potentially faulty sleep apnea products in June 2021. The US Food & Drug Administration labeled it as a Class 1 issue — the most serious type.
Philips is also being investigated by the US Department of Justice and remains in ongoing discussions with the FDA regarding a proposed consent decree. The company has not yet made any provisions for these matters.
“We are still waiting and working through the consent decree which will be upcoming as well as working through further litigation,” Jakobs said.
Revenue this year should rise by a mid single-digit percentage, compared with previous guidance for low single-digit growth, Philips said. Second-quarter adjusted earnings before interest, taxes and amortization rose to €453 million, beating the average estimate of €389 million in a Bloomberg survey of analysts.
The company also lifted its Ebita margin outlook to the upper end of the high-single-digit range from a high single-digit adjusted operating profit margin earlier. The change to the outlook excludes impacts from the recall beyond Philips’ current assumptions, it said.
(Updates with more details throughout)
