Philips warns of lower-than-expected sales, takes another €1.3B hit in Respironics division

After a year spent grappling with the far-reaching consequences of a massive respiratory device recall, Philips closed out last quarter with an optimistic view toward what it believed would be a much smoother end to 2022.

Alas, that no longer seems to be the case. In an update released Wednesday, about two weeks before its third-quarter earnings report is finalized, the company steeled investors for less-than-stellar sales and order intake growth, compounded by a pair of non-cash charges for the quarter that together amount to nearly 1.5 billion euros.

In total, Philips said in the release that it’s now expecting to report sales of 4.3 billion euros for the quarter, which would add up to a year-over-year decline of about 5%. That drop is led by a sales decline in the mid-teens for the company’s connected care business—which houses its troubled Respironics division—and a low-single-digit drop in its diagnosis and treatment segment. Its personal health business, meanwhile, is on track to emerge from the quarter relatively unscathed, with sales growth in the mid-single digits.

And while Philips’ order intake continued to grow throughout the quarter, its year-over-year progress pits it against a period last year that registered 47% growth. Compared to that, new orders dropped 6% in the third quarter of this year.

The sales declines all but cancel out the optimistic full-year forecasts that Philips put forth at the end of last quarter. At the time, fresh off another 7% drop in sales, the Dutch devicemaker predicted an upswing that would see sales grow between 6% and 9% for the remaining half of 2022, resulting in a total annual increase between 1% and 3%.

However, following that difficult third quarter, Philips has lowered its expectations for the remaining three months of the year. It’s now predicting a year-over-year decline in the mid-single digits for the fourth quarter, which likely guarantees that sales growth for all of 2022 will fall into the negatives, too.

The company attributed the lower-than-expected sales to “continued supply chain challenges that were more significant than anticipated in the quarter, impacting deliveries and customer installations,” and which it expects to drag on through the end of the year.

Philips' finances took yet another one-two punch in the form of two non-cash charges. The larger of the two, totaling 1.3 billion euros, is a goodwill impairment charge caused by updates to the financial forecast for its Respironics division. The company is also expecting to take another 165 million euro hit for the quarter, linked to its ongoing work to narrow its R&D focus to a more selective group of pipeline projects.