Royal Philips NV surged as stronger-than-expected earnings outweighed the €575 million ($630 million) costs of a planned legal settlement related to the company’s sleep apnea devices.
(Bloomberg) — Royal Philips NV surged as stronger-than-expected earnings outweighed the €575 million ($630 million) costs of a planned legal settlement related to the company’s sleep apnea devices.
The shares rose 13.8% in Amsterdam, the most in more than two decades, as supply chain constraints cleared up, boosting the medical equipment supplier’s results.
The performance helped ease concerns over the sleep apnea device recall, which has been dogging Philips for months. Users have alleged that the sound-abatement foam in the machines can degrade and be ingested or inhaled, potentially having toxic or carcinogenic effects. The company is a defendant in several class-action lawsuits and individual personal injury claims in the US.
The funds set aside will cover the expected settlement for a so-called economic loss suit, Philips said Monday. The company has already set aside around €1 billion for the recall of around 5.5 million devices globally, of which more than half are in the U.S. Philips started the first such step in June 2021.
“We are now working through getting the final conclusion of the settlement,” Chief Executive Officer Roy Jakobs said in an interview with Bloomberg, adding that payouts for any settlements would begin “from probably the first quarter next year.”
Quarterly Results
Currently around 1 million patients are still yet to receive their repaired devices, Jakobs said. He didn’t give an update on the timeline for sending all the remediated devices back.
The company reported first-quarter adjusted earnings before interest, taxes and amortization of €359 million, beating the average estimate of €212 million in a Bloomberg survey of analysts. Its operational performance improved amid an easing in its supply chain woes and a restructuring process put in train under Jakobs.
“We have strong confidence that this will be a good year,” Jakobs said, acknowledging that uncertainties remain. “We had double digit contribution from China and we expect China to be very strong,” he said.
Philips said it still expects to deliver low single-digit comparable sales growth and a high single-digit adjusted operating profit margin this year.
Morgan Stanley analyst Robert Davies said the firm’s earnings performance was mainly driven by Diagnostics & Technology division, “where supply chain easing helped conversion of the elevated order backlog.” The provision suggests progress on litigation, despite “significant” lingering uncertainty, according to Citi analyst Veronika Dubajova.
Jakobs, who was overseeing the issues around the recall of medical devices to treat sleep apnea, took over in October and started his tenure by cutting 10,000 jobs. More than half of the reductions have been achieved, he said.
Philips has warned it might need to increase the money it sets aside as lawsuits progress.
Read More: Philips Slow in Replacing Recalled Sleep Devices, Regulator Says
It’s 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.
–With assistance from Dani Burger.
(Updates with analyst commentary, details)
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