Philips shares witnessed a 4% dip on Monday, despite robust quarterly earnings and an enhanced outlook for 2023. The decline was primarily attributed to concerns regarding a sustained drop in new orders.
In the third quarter, Philips, the Dutch health technology conglomerate, reported a remarkable surge in its core profit, which more than doubled to 457 million euros ($483.3 million). Additionally, comparable sales exhibited a noteworthy 11% rise, reaching 4.5 billion euros. This surge was fueled by heightened demand for Philips’ portfolio of medical scanners, patient monitoring equipment, and personal health devices.
The company’s performance in these areas far exceeded the projections of industry analysts, who had forecasted adjusted earnings before interest, taxes, and amortization at 389 million euros, along with 8% comparable sales growth.
However, the celebration was tempered by a significant drawback – new orders experienced a stark 9% decline from the previous year. The drop was attributed to multiple factors, including the cooling of demand in China from its pre-pandemic zenith and the persistence of supply chain disruptions.
Back in July, Philips had provided guidance indicating an anticipated improvement in orders for the latter half of the year. CEO Roy Jakobs recently revealed that this guidance had been influenced by new government regulations introduced in the Chinese healthcare market, which were not announced at the time.
“This regulation was not yet announced then, that has been a big distorting factor in the third quarter,” Jakobs commented during a phone interview with Reuters. He went on to state, “Still, we are working hard to improve order intake, and we want to see the benefits in the fourth quarter.”
Despite the fall in orders, Philips now projects a 6% to 7% comparable sales growth over the course of 2023. Furthermore, it envisions a profit margin (adjusted EBITA) ranging from 10% to 11%. This outlook marks a noticeable upgrade from the company’s previous guidance, which had indicated mid-single digit sales growth with a high single-digit profit margin.
However, analysts at ING raised questions about the immediate prospects of growth. They pointed out, “The increased guidance implies a much more modest performance in the fourth quarter of low single-digit growth and a flat margin year on year. This could point to a more modest improvement in 2024,” as noted in a statement by ING analyst Marc Hesselink.
Philips has been grappling with a tumultuous period, having witnessed a significant decline of approximately 70% in its market value over the past two years. This decline is primarily attributed to the ongoing repercussions of a global recall of millions of respirators utilized for sleep apnea treatment. Earlier this month, the company’s shares suffered a 10% drop after the U.S. Food and Drug Administration expressed dissatisfaction with the handling of the recall and mandated Philips to conduct additional risk testing.
In response, Philips acknowledged the request and confirmed that the U.S. Justice Department’s investigation into the recall is still in progress, while refraining from providing further details.
