Shares of Royal Philips (PHG) gained in pre-market trading after the Dutch consumer electronics company reported strong Q2 results. Additionally, Philips has agreed to settle the U.S. Respironics lawsuit, allowing it to focus on growth, especially in China. Meanwhile, its cost-cutting measures from 2022 seem to be paying off.
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The company announced Q2 earnings of €0.48 per diluted share, up from €0.07 per share in the same period last year. Moreover, comparable sales rose 2% year-over-year to €4.5 billion, as North American demand stayed strong despite a dip in sales from China. Philips, which produces medical devices, also saw a 9% increase in comparable order intake in the second quarter.
Philips Agrees to Settle Respironics Lawsuit
Furthermore, Philips has agreed to a $1.1 billion settlement in a U.S. litigation concerning its Respironics sleep apnea devices, which were recalled in June 2021 due to health concerns. The company’s management stated that this settlement will allow Philips to concentrate on innovation, although other legal cases related to Respironics are still ongoing outside the U.S.
China Remains a Key Market for Philips
The company’s management stated that China sales declined partly due to Beijing’s push for self-sufficiency in critical technologies amid U.S.-China tensions. However, China remains a “fundamentally attractive growth market” for the company.
Philips’ Cost-Cutting Initiatives Are Working
Philips had stated in late 2022 that it would slash up to 10,000 jobs, or 13% of its workforce as of January 2022, to improve profitability. It seems that the company’s efforts are paying off, as it reported €195 million in productivity savings, with €57 million from operating model adjustments, €71 million from procurement, and €67 million from other programs.
CEO Roy Jakobs commented on the earnings call, “We announced that we would reduce 10,000 roles. We did 8,000 in the first year, 2023. This year, we have reduced 1,000 roles. You see the benefits coming back in the quarter.”
PHG’s FY24 Outlook
In FY24, the company has projected comparable sales growth in the range of 3% to 5%, an adjusted EBITA margin between 11% and 11.5%, and free cash flow in the range of €0.9 to €1.1 billion.
Is PHG Stock a Buy?
Analysts remain cautiously optimistic about PHG stock, with a Moderate Buy consensus rating based on a Buy and Hold each. Over the past year, Philips has surged by more than 25%. These analyst ratings are likely to change following PHG’s results today.
