Dutch health technology firm Philips (PHG.AS) saw a 4% drop in its shares on Monday, despite posting robust quarterly earnings and an upgraded 2023 outlook, as concerns persisted over declining new orders.
In the third quarter, Philips reported a core profit of 457 million euros ($483.3 million), more than doubling from the previous year.
Comparable sales also surged by 11% to 4.5 billion euros, driven by heightened demand for its medical scanners, patient monitoring equipment, and personal health devices, surpassing analyst estimates.
However, the worrisome aspect was the 9% decrease in new orders, attributed to cooling demand in China after a pre-pandemic boom and lingering supply chain issues.
In July, Philips had initially forecasted an upturn in orders in the second half of the year, but CEO Roy Jakobs explained that this guidance had been disrupted by new government regulations affecting the Chinese healthcare market.
Despite the decline in orders, Philips now anticipates 6% to 7% comparable sales growth for 2023, with an adjusted EBITA profit margin of 10%-11%, up from its previous projection of mid-single-digit sales growth with a high single-digit profit margin.
While this revised outlook might bolster expectations for core profit in 2023, it doesn’t inspire much short-term growth confidence, according to ING analysts, who suggest that the fourth quarter could see modest low single-digit growth and a flat margin year on year, possibly indicating a more restrained improvement in 2024.
Over the past two years, Philips has already experienced a nearly 70% loss in market value due to ongoing challenges stemming from a global recall of millions of respirators used to treat sleep apnea.
Earlier this month, the U.S. Food and Drug Administration expressed dissatisfaction with Philips’ handling of the recall, resulting in a 10% drop in the company’s shares.
Philips has agreed to conduct additional risk testing as per the FDA’s request, and a U.S. Justice Department investigation into the recall remains ongoing, though specific details were not provided.