Royal Philips NV raised its full-year outlook after supply-chain constraints eased to give some breathing room to the Dutch company grappling with a costly device recall.
(Bloomberg) — Royal Philips NV raised its full-year outlook after supply-chain constraints eased to give some breathing room to the Dutch company grappling with a costly device recall.
Revenue this year should rise by 6% to 7%, compared with previous guidance for mid single-digit growth, the medical equipment maker said Monday. Operational performance has improved this year amid a restructuring process under the new Chief Executive Officer Roy Jakobs.
Philips’ order book remains strong, and the company is improving processes to boost new intake and shortening delivery times, Jakobs, who took the company’s reins in October 2022 and started his tenure by cutting 10,000 jobs, said in a statement.
While the company raised its forecast, comparable order intake dropped 9% from the previous quarter after lower demand in China, where Philips took a hit from a sweeping anti-graft campaign across the country’s health-care sector in the summer. Equipment orders in China account for about 5% of Philips’ total. Product delivery times also dragged longer.
Costly Recall
Philips has also been dealing with a costly recall of faulty sleep therapy devices for some time and the issue remains unresolved. The company started a recall in June 2021, after health concerns due to disintegrating noise-dampening foam inside the machines designed to treat sleep apnea. The US Food and Drug Administration has labeled the fault a Class 1 issue, the most serious type.
The company already set aside about €1 billion ($1.1 billion) for the recall of some 5.5 million devices, and last month agreed to pay at least $479 million to resolve some of the litigation. But it is still facing class-action and potentially thousands of individual lawsuits over health complications caused by the problem, and costs could rise further.
The US Department of Justice is still investigating Philips and the company remains in discussions with the FDA regarding the proposed consent decree, which may force it to cease some US operations until it completes corrective actions. Philips has not yet made any financial provisions for these matters.
Philips shares are up 28% so far this year. Still, the stock is under pressure as it slid as much as 74% since the initiation of the recall.
The company on Monday also reported third-quarter adjusted earnings before interest, taxes and amortization of €457 million, beating the average estimate of €413 million in a Bloomberg survey of analysts. The company expects an adjusted Ebita margin of as much as 11% this year.
(Updates with details from the statement)
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