Koninklijke Philips N.V. is adjusting expectations after a rough quarter marked by declining demand in China. The health-tech company lowered its 2024 sales growth forecast to a range of 0.5% to 1.5%, down from the initial 3% to 5% projection. The sharp drop in China sales played a major role in this change, prompting Philips’ biggest one-day stock drop in 26 years.
CEO Roy Jakobs explained that ongoing anti-corruption measures in China’s healthcare sector continue to weigh heavily on sales and order volumes.
Philips’ third-quarter revenue remained steady at €4.38 billion, but the story wasn’t quite so straightforward. Orders from China saw a decline, dragging the overall comparable order intake down by 2% globally. In contrast, North America showed some resilience with increased orders in key areas like image-guided therapy.
There’s still some good news for Philips. Despite the setbacks, the company reported an improved net income of €181 million for Q3, up from €90 million last year. The adjusted EBITA margin also jumped to 11.8%, which suggests some solid gains in profitability, helped by productivity initiatives and higher royalties.
However, the overall picture remains cloudy. Jakobs acknowledged the ongoing uncertainty in China and advised caution for the upcoming quarters He expects these issues to spill over into 2025, impacting sales growth and recovery efforts.
Beyond the China struggles, Philips is facing legal troubles in the U.S. Its Respironics division is under investigation by the Department of Justice due to issues with faulty sleep apnea devices. While the financial impact of this investigation isn’t yet reflected in their updated outlook, it looms large in their future plans.
For now, Philips is pinning its hopes on growth outside of China, where it still projects 3% to 5% growth. The company is also focusing on improving supply chain efficiencies and maintaining strong relationships with key markets like the U.S.
As the quarter closed, Philips found itself at a crossroads. While other regions continue to offer a bright spot, China’s challenges and legal woes in the U.S. are hurdles they must tackle head-on. But Jakobs remains optimistic, pointing to their strategic planning and strong product pipeline. Only time will tell if this cautious optimism is enough to weather the storm.
