Royal Philips, in its third-quarter earnings call for 2023, reported an 11% sales growth, doubled profitability, and enhanced cash flow, pointing to a strong operational performance. The company also raised its full-year outlook for 2023, despite geopolitical uncertainties. Philips' progress on enhancing patient safety, strengthening supply chain reliability, and establishing a simplified operating model was also highlighted.
Key takeaways from the call include:
- Sales growth in Diagnosis and Treatment by 14%, Connected Care by 10%, and Personal Health by 7%.
- Near completion of the remediation of Respironics sleep therapy devices, which were recalled previously.
- A 10-year agreement signed with a US health system and the launch of new products.
- Improved cash flow, disciplined cost management, and productivity savings.
- Plans to cancel over 15 million shares and the issuing of fixed-rate notes to strengthen debt maturity.
- Full-year outlook includes 6-7% sales growth and an adjusted EBITA margin between 10-11%.
Philips is actively engaged with the FDA for further testing of the Respironics products. The company also received preliminary court approval for a settlement agreement to resolve economic loss claims related to the recall.
Richard, a Philips representative, addressed questions on lead times, indicating improvements across their businesses. However, some modalities still pose challenges. He asserted that the company is actively working to reduce lead times to align with industry standards, with a focus on improving operational efficiency and supply chain reliability.
On the topic of D&T margin and pricing, Richard confirmed that pricing was a driver of margin progression in the quarter. He did not anticipate significant price increases in future quarters, expecting pricing to remain stable, which would support margin levels.
Philips also reported strong growth in orders and revenue in China, attributing the success to high demand and progress in the local market. Despite a short-term slowdown due to anti-corruption measures in hospitals, the company expects the market to resume its growth trajectory.
In terms of lead times, Philips has made improvements in its supply chain and expects further improvements as it resolves issues with high-risk components. The company is working towards normalizing its order book by 2024.
As for the ongoing testing with the FDA, Philips is in active dialogue and working to satisfy the FDA's requirements. The company expects to have a liability estimate for medical injury claims in the second half of 2024.
During the call, Philips executives also discussed their return to the market, stating that customers have welcomed them back without significant pricing differences. They also mentioned plans for product launches and innovation in the coming years to reaccelerate growth momentum.
In the Chinese market, Philips executives expressed confidence, highlighting the significant uptake of their innovative products, such as Spectral and helium-free offerings. They also addressed concerns about the impact of GLP-1 therapy on the CPAP market, stating that they do not see it as a major threat due to the large undiagnosed patient group in sleep.
Abhijit Bhattacharya, a representative from Royal Philips, stated that Q4 order intake is expected to improve over Q3's negative 9%. Philips has re-entered the market in countries such as Japan, China, Australia, Latin America, and the EU, and remains confident in its strong performance, increased guidance, and execution of its long-term plan.
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