Philips Q1 core profit plunges as supply chain problems persist

AMSTERDAM: Dutch health technology company Philips on Monday said first-quarter core profit dropped about a third from a year earlier to 243 million euros ($262 million), hit by an ongoing global shortage of parts and a massive recall of ventilators.

Comparable sales fell 4% to 3.9 billion euros, as the Amsterdam-based supplier of medical systems and personal health products continued to struggle with supply chain woes and had to expand its global recall of respiratory devices once again.

Analysts polled by the company on average had forecast adjusted core profit – earnings before interest, taxes and amortisation – of 236 million euros, and a sales to drop of almost 8%.

Philips said it still expected sales and profitability to recover in the second half of the year, provided current problems do not get worse.

“Risks related to the Covid19 situation in China, the Russia-Ukraine war, supply chain challenges and inflationary pressures … may impact our ability to convert our strong order book to sales and achieve our margin target if conditions deteriorate further”, Chief Executive Frans van Houten said.

Growth is also being held back by the firm’s sleep and respiratory care unit, which is still working on the massive recall of ventilators launched last year amid concerns that a type of foam used in the devices could deteriorate and become toxic. 

Philips hiked its provision for global repair or replacement of more than 5 million devices by 165 million euros in the first quarter, taking the total costs so far to almost 900 million euros.

That sum does not cover possible litigation costs, with the company facing more than a hundred class action suits. Fears of a large claims bill have lopped around 15 billion euros off Philips’ market value since June last year.