Philips ekes out a profit for the first time in over a year, though orders continue to drop

It’s been a long, uphill battle, but Philips may finally be regaining its financial footing.

After posting net losses for the last five quarters, the Dutch devicemaker crawled out of the red to tally a net profit of 74 million euros ($82 million) for the second quarter of this year—its first time back in black since the fourth quarter of 2021.

The year-and-a-half-long downward spiral stemmed from Philips’ recall of several million CPAP machines, ventilators and other respiratory devices, a safety event that began in the spring of 2021 and has sparked more than 100,000 complaints, per the FDA’s latest tally, including reports of 385 deaths—though Philips maintains that the disintegrating polyester-based polyurethane foam at the heart of the recall “is unlikely to result in an appreciable harm to health in patients.”

In its second-quarter financial report Monday, Philips linked the improved net income to an overall boost in its earnings for the period. It brought in nearly 4.5 billion euros ($5 billion) in sales, compared to just under 4.2 billion euros during the same period last year, representing growth of around 7%.

The company saw a massive surge in its operating income: from just 11 million euros during the second quarter of 2022 to 221 million euros this time around.

Those improvements came even as Philips reported a drop in orders. Its order intake was 8% lower year over year, which the medtech giant attributed to the “normalization of demand” following the comparably large number of orders received during the same period in 2022. In particular, it registered “high single-digit declines” in order intake for both its connected care and diagnosis and treatment divisions.

Additionally, according to the earnings report, that drop in order intake would’ve been cut in half if Russian orders were excluded from the count; though Philips has continued to provide needed medical equipment to the country amid the invasion of Ukraine, it stopped shipping most consumer health products, began winding down R&D activities and suspended marketing activities there in February 2022.

The reduced order intake was likely responsible for the stock slip that Philips experienced Monday morning after the release of the earnings report, despite its return to profit. Its shares opened at $21.63, down about 6% from Friday’s closing price of just over $23, which had marked the stock’s highest point in over a year.

The return to profitability doesn’t mean that Philips’ recall troubles are behind it. Within the connected care segment—the home of the recall-laden Respironics division—the second quarter’s expenses included 95 million euros for restructuring and acquisition charges, 51 million euros for remediation costs associated with the recall and another 28 million euros for “quality action-related charges” in the segment.

For the next quarter of the year, Philips is already expecting to rack up about 80 million euros’ worth of restructuring, acquisition and other charges.

That doesn’t include the potential costs of a proposed consent decree from the U.S. Department of Justice—which is still under discussion—nor those that could come from the DOJ’s investigation of and ongoing lawsuits over the recall. In the first quarter, for example, the bulk of Philips’ reported net loss of 665 million euros came from its decision to set aside 575 million euros to prepare for the potential effects of a wide swath of class-action lawsuits currently being litigated in the U.S.

To date, as the company reported Monday, it has produced about 99% of the replacement devices and repair kits needed for its remediation program covering the 5.5 million recalled respiratory machines. That percentage represents only the number of devices and kits produced, and not necessarily those actually shipped to users; according to Philips, “The vast majority of the produced sleep therapy devices have been provided to patients and home care providers, while the remediation of the affected ventilators is ongoing.”