Philips Reports Strong Q2 Results, Boosted by Job Cuts

Philips, the Dutch medical device manufacturer, announced second-quarter results that surpassed analysts’ expectations, leading to a more than 10% rise in its shares.

The company’s performance was bolstered by cost savings from job reductions and a substantial insurance payout linked to its Respironics product liability claims.

Key Financial Highlights:

• Adjusted EBITA: Philips reported an adjusted earnings before interest, tax, and amortization (EBITA) of 495 million euros ($537.4 million) for the quarter, a 9.3% increase compared to the previous year. This figure exceeded analysts’ expectations of 433 million euros.
• Adjusted EBITA Margin: The adjusted EBITA margin rose to 11.1% of sales, up from 10.1% in the same period last year and above the expected 9.7%.
• Quarterly Sales: Sales for the quarter increased by 2% year-on-year to 4.5 billion euros, aligning with market expectations.

Cost-Saving Measures:

Since late 2022, Philips has been executing a cost-saving strategy that includes reducing its workforce by up to 10,000 positions to restore profitability and improve product safety.

CEO Roy Jakobs highlighted the progress, stating that 8,000 roles were cut in 2023, with an additional 1,000 reductions this year. These measures resulted in savings of 195 million euros between April and June.

Barclays noted that the stronger-than-expected margins were a “testament to improving execution under new leadership,” attributing a 320 basis point improvement to productivity gains.

Insurance Payout and Legal Settlements:

Philips received 538 million euros in insurance income related to liability claims for its recalled Respironics products. This income was not included in the adjusted EBITA figures.

The company previously agreed to a $1.1 billion settlement for all personal injury claims in the U.S. concerning its Respironics breathing devices and ventilators. The recall, initiated three years ago, was due to concerns that the foam utilized in the devices could degrade and become toxic, posing potential cancer risks.

Philips reiterated its financial targets for the rest of the year, maintaining a cautious but optimistic stance as it navigates the challenges posed by the Respironics recall and other market conditions.