Shares of Philips N.V. fell approximately 17% during morning trading in Amsterdam and in pre-market activity on the NYSE. The Dutch consumer electronics company revised its projected comparable sales growth for fiscal year 2024, following an underwhelming performance in terms of sales and orders, and reporting flat comparable sales in its third quarter. The primary cause was the further decline in demand from China.
Conversely, the company now anticipates its annual adjusted EBITA margin to reach the higher end of its previously projected range, bolstered by a significant increase in profit over the latest quarter.
Despite current market challenges, Philips maintains that China remains a fundamentally attractive growth opportunity for the long term, though market conditions are expected to stay uncertain.
Roy Jakobs, CEO of Royal Philips, remarked, “During the quarter, we observed a further decline in demand from hospitals and consumers in China, even as we experienced strong growth across other regions. Our full-year sales outlook has been adjusted to account for the ongoing impact from China. The notable improvement in profitability is rooted in our progress on execution priorities, productivity initiatives, and the enhanced margins of our AI-driven, leading innovations. Within a challenging macro environment, we are determined to successfully execute our three-year strategy to fully tap into growth and margin expansion opportunities.”
For fiscal 2024, the company now forecasts the annual adjusted EBITA margin to be approximately 11.5%, which aligns with the upper limit of its previous range of 11% to 11.5%.
Due to the significant decline in demand in China, Philips now anticipates comparable sales growth for 2024 to be in the 0.5% to 1.5% range, a decrease from its prior expectation of 3% to 5%. However, growth outside of China is expected to remain between 3% and 5%.
The company predicts annual free cash flow to be around €0.9 billion, the lower end of its earlier projection of €0.9 billion to €1.1 billion.
In its third quarter, Philips saw its net income attributable to shareholders rise to €181 million, compared to €88 million from the previous year. Earnings per share increased to €0.19, up from €0.09.
This performance was supported by a higher gross margin and reduced Respironics field action costs, despite incurring higher tax expenses.
The adjusted EBITA margin improved by 160 basis points to reach 11.8%, up from 10.2% the previous year.
However, third-quarter sales fell 2% to €4.38 billion from €4.47 billion the prior year. Group comparable sales remained flat compared to an 11% growth the previous year, largely due to the downturn in demand from China, while all other regions posted growth.
During the quarter, comparable order intake decreased by 2%, primarily due to developments in China, despite robust growth in orders for Diagnosis & Treatment, especially in the US.
Breaking it down further, Diagnostic & Treatment saw a 1% decline in comparable sales, following a 14% increase from the previous year, despite solid growth outside of China.
Connected Care comparable sales remained steady, as growth in Enterprise Informatics and Sleep & Respiratory Care was offset by a low single-digit decline in Monitoring.
In Personal Health, comparable sales declined by 5%, driven by a double-digit decrease in China, which overshadowed strong performances elsewhere.
In Amsterdam, Philips shares were trading at €24.55, down 16.72%.
In pre-market trading on the NYSE, shares stood at $26.42, reflecting a 16.58% decrease.
