Koninklijke Philips Shares Plunge 14.7% on Profit Warnings

This article was originally published on TipRanks.com

Shares of Koninklijke Philips (NYSE: PHG) were down 14.7% on January 12, after the global health technology company reported that it expected a drop in its Q4 and FY2022 results.

The expected miss has been attributed to a global shortage of electronic components, and the rising recall of some of its sleep and respiratory care devices due to potential health concerns.

Lower-than-expected Q4 and FY2021 Results

Ahead of its upcoming earnings for the fourth quarter and full-year results on January 24, 2022, the company stated that its sales and profitability will not be able to meet the previous guidance.

For Q4, Group sales are now expected at €4.9 billion, €350 million lower than the prior expectations. The company attributed the lower expectations to intensified global supply chain shortages, postponement of customer equipment installations, and a recall of Philips Respironics announced earlier.

Similarly, due to lower sales and increased supply costs, Q4 adjusted earnings before interest, taxes, and amortization (EBITA) is predicted to be 13% of sales at around €650 million.

Likewise, for the full year 2021, the company expects group sales of €17.2 billion, while Comparable sales for the full year will be down 5 percentage points. Meanwhile, FY2021 adjusted EBITA is expected to be 12% of sales at €2.1 billion.

Furthermore, the company stated that it expects restructuring, acquisition-related, and other charges in the fourth quarter to the tune of €420 million, €315 million higher than the previous guidance.

The steep rise is due to incremental field action provision related to the voluntary Philips Respironics recall notification, and a provision for quality actions and other matters in the Connected Care businesses.

On a positive note, the company witnessed strong comparable order intake growth of 4% during the fourth quarter, reflecting a double-digit growth in the Diagnosis & Treatment businesses.

Increased Philips Respironics Recall Leading to Higher Provision

Philips Respironics now expects to recall a total of approximately 5.2 million registered devices globally. Likewise, the company has increased related field action provision by around €225 million due to the higher volume of devices recalled as well as higher supply costs.

The company said that it has expanded the scope to certain older devices for the welfare of patients and in accordance with competent authorities.

Last year, the company recalled its breathing-aid machines amid concerns of potential health risks related to the polyester-based polyurethane sound abatement foam used in these devices.

CEO Frans van Houten, stated, “To date, Philips Respironics has produced a total of approximately 1.5 million repair kits and replacement devices, of which approximately 700,000 have reached customers.”

CEO Comments

CEO Frans van Houten, commented, “We continue to see good demand for our innovative products and solutions, resulting in an all-time high order book.”

However, speaking on the current issues, he added, “We faced significantly intensified global supply chain issues across our businesses, in addition to customer postponement of equipment installations in hospitals. We are closely working with suppliers and governments to address the shortages in the healthcare supply chain and ensure they recognize the importance of prioritizing life-saving medical equipment.”

Wall Street’s Take

The stock has picked up a rating from one analyst in the past three months. Following the company’s announcement, Citigroup downgraded Koninklijke Philips from Buy to Hold.

News Sentiment

News Sentiment over the past seven days is Very Negative, with 75% of the articles published being bearish compared to a 41% sector average.

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