Cost savings drive Philips' Q2 profit growth, flags insurance payout

Philips reported second-quarter results that exceeded analysts' expectations on Monday, boosted by savings from job cuts, and flagged a big insurance payout linked to its Respironics product liability claims, sending its shares more than 10 per cent higher.
 

The Dutch medical device maker said its adjusted earnings before interest, tax and amortisation (EBITA) rose 9.3 per cent to 495 million euros ($537.4 million) in the quarter, beating the 433 million euros expected by analysts polled by the company.
 

Adjusted EBITA margin rose to 11.1 per cent of sales, compared with 10.1 per cent in the same period last year. Analysts were expecting it to fall to 9.7 per cent.
 

Since late 2022, Philips has said it would slash up to 10,000 jobs in an attempt to restore profitability and improve product safety.
 

"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," said CEO Roy Jakobs in a press call. "You see the benefits coming back in the quarter."
 

The Amsterdam-based group said it saved 195 million euros between April and June through such productivity improvements.
 

"Margins were stronger across the board, and the company note 320bps of support from mainly productivity," Barclays said in a note to clients, adding the results were a "testament to improving execution under new leadership".
 

Philips also received 538 million euros of insurance income from liability claims related to its recalled Respironics products, not accounted for in the adjusted figures.
 

The group said during the first quarter it had agreed to pay $1.1 billion to settle all personal injury claims filed in the U.S. related to its Respironics breathing devices and ventilators.
 

For three years, it has grappled with the fallout of its recall of millions of devices, because of concerns that foam used in them could degrade and become toxic, carrying potential cancer risks.
 

Quarterly sales rose 2 per cent year-on-year to 4.5 billion euros, in line with expectations.
 

Philips reiterated its financial targets for the rest of the year.

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