Koninklijke Philips’ ( PHG Quick Quote PHG - Free Report) fourth-quarter and 2021 results have suffered from supply-chain constraints and adverse impact of the Respironics recall. The company now expects fourth-quarter sales to be €4.9 billion, which is around €350 million lower than Philips’ previous expectation. The estimated miss can be attributed to global supply chain shortages, primarily related to electronic components and freight capacity. Postponement of equipment installations by hospitals also hurt top-line growth. Philips stated that the Respironics recall, along with the above-mentioned factors, is expected to have hurt comparable sales by nearly 10%. Markedly, on Jun 14, 2021, Philips recalled some Bi-Level Positive Airway Pressure (Bi-Level PAP), Continuous Positive Airway Pressure, and mechanical ventilator devices in the United States, as announced on Apr 26. Philips identified health risks with the polyester-based polyurethane (PE-PUR) sound abatement foam component in these devices that might degrade and become toxic. The recall includes the first-generation DreamStation product family. In terms of profitability, adjusted EBITA, which is Philips’ preferred measure of operational performance, is expected to be roughly €650 million or 13% of sales, negatively impacted by lower sales and higher supply costs. In third-quarter 2021, EBITA was €512 million, down 25.1% from the year-ago quarter.
Restructuring, and acquisition-related and other charges in the fourth quarter are expected to be €420 million, which is €315 million above the previously guided charges, resulting from the Respironics recall and other quality-related matters in the Connected Care business.
Philips has undertaken a new provision of €225 million that took the total cost of recalls to €725 million. The company now expects to repair roughly 5.2 million registered devices globally. For 2021, Philips now expects sales to be roughly €17.2 billion while comparable sales are estimated to decline 1% over 2020. Philips’ Respironics recall is expected to have hurt comparable sales by 5%. Earlier, for 2021, Philips had expected low-single-digit comparable sales growth with modest adjusted EBITA margin improvement. However, comparable order intake is expected to have increased 4% in the fourth quarter, driven by double-digit growth in the Diagnosis & Treatment businesses. This is expected to have resulted in 4% growth for 2021. Comparable order intake grew high single digit in fourth-quarter as well as full-year 2020. Expanding Partner Base to Aid Growth
Although supply-chain constraints and the Respironics recall are expected to hurt results in the first half of 2022, Philips’ expanding partner base and acquisitions are expected to drive growth in the long run.
Philips is benefiting from partnerships with hospitals. Recently, the company announced a 12-year strategic technology agreement with IJsselland Hospital, focusing primarily on digitization, optimization and innovation across patient monitoring and radiology solutions. Philips collaborated with Cognizant ( CTSH Quick Quote CTSH - Free Report) to develop end-to-end digital health solutions. These digital health solutions will enable life science companies and healthcare organizations to improve patient care and accelerate clinical trials. The strategic alliance brought together Cognizant’s digital engineering expertise and Phillips HealthSuite, to maintain and deliver advanced digital health solutions at scale using big data. Apart from Cognizant, Philips has inked a partnership with likes of NICO.LAB, the Spanish National Center for Cardiovascular Research, Elekta, and Akumin, among others. Zacks Rank & Stocks to Consider
Philips currently carries a Zacks Rank #4 (Sell).
Philips has underperformed the broader Medical sector in the past year. While shares fell 28.5% the sector declined14.9%. The Zacks Consensus Estimate for 2022 earnings is pegged at $5.82 per share, up 0.9% over the past 60 days. Revenues stand at $385.33 billion, indicating 5.3% growth from the figure reported in fiscal 2021. Better-ranked stocks in the Medical sector are Quidel ( QDEL Quick Quote QDEL - Free Report) and Eagle Pharmaceuticals ( EGRX Quick Quote EGRX - Free Report) , both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank) stocks here. Quidel shares have lost 37.2%, while Eagle Pharmaceuticals has returned 3.6% in the past year The Zacks Consensus Estimate for Quidel’s current year earnings is pegged at $6.90 per share, up 8.7% over the past 60-days. The consensus mark for Eagle’s 2022 earnings stands at $7.37 per share, up 14.3% over the past 60 days.