Philips (PHG +13%) surged to its highest levels since 2022, despite missing earnings estimates. Investors focused on improving demand and reiterated guidance. The medical and personal health device manufacturer resolved its U.S. litigation over Respironics products and reaffirmed its FY24 outlook. With litigation behind it, Philips is now concentrating on overcoming macroeconomic challenges. Despite several headwinds, the company remains confident in improving underlying demand, keeping it on track for its FY24 and FY25 goals.
- Comparable sales growth in Q2 was +2.0%, similar to Q1's +2.4%, driven by growth across all segments. Diagnosis & Treatment, including diagnostic imaging and ultrasound products, saw the best growth at 4%. Connected Care, which includes Respironics, and Personal Health both increased by 2%. Adjusted EBITDA margins improved by 100 basis points year-over-year to 11.1%.
- Comparable order intake growth increased by +9.0% year-over-year, a significant turnaround from last quarter's -3.8%. Orders and the order book account for around 40% of Philips' revenue, with the rest coming from recurring streams like services and consumables.
- North America remained the strongest market, while China lagged with another year-over-year drop in orders. However, Philips expects China to gradually contribute to order growth despite ongoing anti-corruption measures affecting approval cycles.
- Philips is optimistic about leveraging current tailwinds, including global hospital staffing shortages. While the recovery in China remains unpredictable, the company expects strength in North America and other international markets to persist. Despite Q2 misses, Philips is confident in achieving its FY24 financial goals, including comparable sales growth of +3-5% and adjusted EBITDA margins of 11.0-11.5%.
As the first quarter since resolving U.S. litigation, Philips' Q2 results showcased its ability to leverage geographic diversity and competitive strengths, delivering solid numbers despite global uncertainty. While challenges remain, particularly in China, the resilience in North America is encouraging, keeping Philips on track for its long-term financial targets.
