Philips (NYSE:PHG) surged in pre-market trading after the Dutch healthcare company announced a smaller-than-expected settlement of $1.1 billion to resolve all U.S. personal injury claims. The settlement was related to the recall of its breathing devices in the U.S.
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The payments are expected next year and will be funded by the company’s cash flows. Philips also made a provision of €982 million in Q1 for this settlement.
The healthcare company had struggled with the repercussions of its recall of breathing devices and ventilators for three years as there were fears of a large settlement bill. Over the past three years, PHG stock has halved in value.
Earlier this year, the company signed a consent decree that outlined the changes needed at Philips Respironics plants for device sales in the U.S.
Philips’ Device Recall Case
In 2021, the healthcare giant suffered a significant setback when it was compelled to recall millions of sleep therapy devices and ventilators utilized for treating sleep apnea. This action was prompted by the discovery that the foam employed to muffle noise from the devices could potentially become toxic and pose cancer risks.
As per a Reuters report, a Barclays analyst highlighted that the settlement fell below expectations. Specifically, it was anticipated to fall within a range of $2 billion to $4 billion on the lower end and up to $10 billion on the higher end. Moreover, the analyst emphasized that the settlement was reached sooner than anticipated, thereby alleviating an ‘overhang’ that many had feared would persist for years.
Philips’ Q1 Results
In addition, Philips announced Q1 results with sales of €4.1 billion, with comparable sales growth of 2.4%. The company reported adjusted earnings before interest, taxes, and amortization (EBITA) of €388 million, which was an increase of 8.1% year-over-year.
However, comparable order intake fell by 3.8% in the first quarter, mainly due to lower sales in China.
Philips reiterated its FY24 outlook and expects comparable sales growth in the range of 3% to 5% and an adjusted EBITA margin between 11% and 11.5%. The company has projected a free cash flow in the range of €0.9 billion to €1.1 billion in 2024.
Is PHG Stock a Buy?
None of the Wall Street analysts have covered PHG stock over the past three months. Year-to-date, PHG stock has declined by more than 9%.
