Philips Soars After Lifting Margin Outlook on Softer Tariff Hit
The Dutch medical-technology firm now expects full-year adjusted operating earnings margin of as much as 11.8%, a 50 basis points increase from its previous outlook, according to a statement Tuesday. Shares in Philips rose 14% in early trading in Amsterdam, the biggest intraday advance in a year.
'It's a combination of the strong performance plus tariffs that led to a change in guidance,' Chief Executive Officer Roy Jakobs said in an interview.
The MRI and ultrasound machine maker's second-quarter sales increased 0.6% to €4.3 billion ($4.98 billion), compared with estimates for a 0.5% contraction in a Bloomberg survey.
'Overall, we see this as a positive release for Philips with improving underlying performance at the company testament to some of the turnaround actions taken,' Barclays analyst Hassan Al-Wakeel said in a note.
In May, the Amsterdam-listed company lowered its profitability outlook for the year by 100 basis points, blaming the cost of dealing with tariffs and estimating a hit of as much as €300 million. It now sees an impact of as much as €200 million.
On Sunday, the European Union reached a deal with the US with Brussels accepting a 15% tariff on most of its exports, dodging an imminent trade war. More than 40% of Philips' sales are in the US with a third of production inside the country.
Philips is asking for tariff exemptions for the healthcare sector. 'The US is a very important market for us,' Jakobs said in an interview with Bloomberg TV, adding that the company is expanding its presence and investment there.
Philips's stock was down 19% in the year before Tuesday as the company suffered a string of setbacks. A settlement last year over a 2021 recall of faulty sleep apnea devices made way for sluggish growth in China and an expected hit from the trade war.
Since taking the helm at Philips in October 2022, Jakobs has cut jobs, revamped leadership and simplified operations. He is emphasizing patient safety and developing new products, with the company spending more than 9% of sales on innovation last year.
Still, headwinds such as weak consumer sentiment in China and the implementation of anti-graft measures for its health care sector have dampened demand.
Sales in China declined again in the second quarter, but were offset by growth in India and Latin America.
Philips' comparable orders increased 6% in the second quarter, up from 2% in the previous three months. The company said Tuesday it signed an agreement with Indonesia for its Azurion image-guided therapy system. The multi-year deal is worth hundreds of millions of euros, according to a person familiar, who asked not to be identified discussing private information.
The company also increased its free cash flow outlook to between €200 million and €400 million, from 'slightly positive' before.
--With assistance from Lisa Pham, Sarah Jacob, Anna Edwards, Kriti Gupta and Guy Johnson.
(Updates with share move in second paragraph.)
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