Royal Philips NV, a prominent medical-equipment manufacturer, witnessed a significant dip in its shares, plummeting by as much as 5.3% in Amsterdam. This drop in shares of Philips NV marked the lowest level since April, following the company’s revelation of a fifth consecutive quarter of declining orders. The primary cause attributed to this decline is the waning demand in China.
During the three months ending in September, new orders experienced a sharp decline of 9%, a repercussion of an extensive corruption investigation in China targeting the health-care sector. This investigation has led to extended delivery times for Philips products. In response to these developments, Jefferies analyst James Vane-Tempest expressed concerns in an email note, suggesting that the situation in China may exert pressure on sales growth over the next 12-18 months.
CEO Roy Jakobs, however, conveyed that the company does not anticipate the anti-graft measures to have a substantial impact on overall demand in China, although acknowledging a “significant” impact on this quarter’s performance.
In addition to grappling with the repercussions of the China probe, Philips is still contending with the costly recall of faulty sleep therapy devices from earlier this year. This has led to class-action suits and potentially thousands of individual lawsuits over health complications. The financial implications of these legal proceedings could escalate further.
Nonetheless, the company remains optimistic about its overall fiscal performance. Philips foresees a revenue increase of 6% to 7% for the current year, coupled with an adjusted EBITA margin reaching as high as 11%. In a surprising turn, the adjusted EBITA for the months spanning July to September exceeded expectations, clocking in at €457 million, surpassing the average estimate of €413 million according to a Bloomberg survey of analysts.
In a strategic move to address the current orders predicament, Philips is actively working to shorten delivery times. CEO Jakobs disclosed plans, initiated a year ago, to trim 10,000 jobs as part of a restructuring effort.
Despite this recent downturn, Philips’ shares have managed to make substantial progress, registering a rise of approximately 25% this year. Observers will be closely monitoring Philips’ trajectory in the coming months, eager to witness if the company can recover its stride and enhance order delivery efficiency. In the interim, investors will maintain a watchful eye on the company’s performance.
Source: Bloomberg
