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| MobileDiagnost Opta portable X-ray--Courtesy of Philips |
Philips ($PHG) expects to ramp up production of CT scanners at its troubled Cleveland manufacturing facility and return to previous production levels by the end of the year, following a €100 million ($112 million) quality improvement plan initiated last year, company officials said during its Q1 2015 earnings call.
That and increased non-manufacturing investments in healthcare informatics, the company's healthcare incubator and other areas contributed to worrying decline in profit margins at Philips Healthcare in Q1, down year over year from 7.7% to 2.9%. They also caused earnings to fall to €65 million ($72 million), down from €152 million ($169 million) in Q1 2014.
Overall, Philips Healthcare sales increased 15% during the quarter on an annualized basis to €2.26 billion ($2.51 billion). But that was largely due to favorable exchange rates as a result of the strengthening euro. Sales increased 1% at constant currencies.
Amid a restructuring aimed at focusing the unit more squarely on healthcare informatics, Philips CEO Frans van Houten described the company's strength in managing data, saying, "Today, nearly 400 million imaging informatics studies across 1,200 hospitals are managed by our clinical informatics solutions. Our ability to engage on end-to-end solutions across the health continuum is increasingly proving to be a competitive advantage with customers. We signed, for instance, a joint development agreement with the Mount Sinai Health System in New York to create a state-of-the-art digital pathology database from hundreds of thousands of tissue samples and to develop innovative algorithms to ultimately enable more personalized patient care."
Orders of healthcare informatics, solutions and services increased by double digits during the quarter.
Sales in emerging markets rose 21% during the quarter, led by a deal to modernize the healthcare infrastructure in Kenya. "We signed a multi-year agreement with the Kenyan Ministry of Health for the installation of complete Intensive Care Units at 11 county hospitals across the country. The agreement includes the installation and maintenance of the equipment, such as patient monitoring solutions, as well as the renovation and adaptation of the existing buildings in which the Intensive Care Units will be housed and we also provide staff training," van Houten said.
New product launches at the company include the Intellispace Cardiovascular image and information management system and the MobileDiagnost opta portable X-ray. In addition, van Houten said Philips launched several new electronic toothbrushes and other dental devices at the International Dental Show in Cologne, Germany. The products are a part of the company's consumer lifestyle unit.
Other highlights of the quarter include the acquisition of image-guided therapy specialist Volcano for $1.2 billion and appointment of former Hologic CEO Rob Cascella as the leader of Philip's imaging businesses.
To help the conglomerates invest and focus more tightly on healthcare and consumer products, the company is exiting the lighting business. It recently agreed to sell its lighting components and automotive lighting business for about $3.3 billion, and a plan to spin off the remainders of its lighting operations remains on track. "The transition of the lighting business into a separate legal structure will take at least until the end of 2015 in order to be ready for the separation, which is currently intended to be effectuated through an IPO in the first half of 2016," van Houten said, adding that separation costs will be €300-400 million this year ($335 million).
Those costs contributed to a 28% decline in Q1 net profit at the company as a whole to €99 million ($110 million).
- read the earnings report (PDF)
Special Report: The top companies in med tech: 2014 revenue results - Philips