In a noteworthy development for Philips, a leader in the health technology sector, the company reported a significant increase in second-quarter earnings compared to the previous year, largely attributed to effective cost-saving measures and a substantial payout from insurers related to liability claims concerning its respiratory care products.
For the June quarter, adjusted earnings rose to 0.30 euros ($0.33) per share, up from 0.27 euros in the same period last year. This performance slightly outstripped market expectations, as four analysts surveyed by Capital IQ had anticipated earnings of 0.27 euros per share. Although sales declined marginally to 4.46 billion euros from 4.47 billion euros, this figure still met the consensus estimate of 4.45 billion euros.
Consequently, Philips' stock traded on the New York Stock Exchange witnessed a significant premarket surge, climbing by 9.2%. The company's financial recovery was bolstered by receiving 538 million euros in insurance income. This payout resulted from an agreement reached with insurers in the quarter to cover liability claims stemming from recalled products associated with its Respironics division, highlighting the company's proactive approach in managing its product liabilities.
Chief Financial Officer Abhijit Bhattacharya, during an earnings call, indicated that the company is expecting further payments this financial year. In addition to the insurance influx, restructuring and acquisition-related adjustments led to a net gain of 381 million euros, featuring the insurance payment.
This contrasts sharply with the net loss of 161 million euros recorded in the prior year. Furthermore, the company's productivity initiatives yielded a saving of 195 million euros in the second quarter, including operating model savings of 57 million euros and procurement savings of 71 million euros, showcasing Philips' ongoing commitment to operational efficiency.
On a comparative sales basis, there was a modest 2% increase in the quarter. This is in stark contrast to the 9% growth observed in the same quarter of 2023. Breaking down the segments, the diagnosis and treatment unit experienced a comparable sales increase of 4%, while connected care reported a 2% uptick.
The personal health division, however, saw comparable sales growth slow to 2%, down from 3% in the previous year. Chief Executive Roy Jakobs expressed optimism regarding the week's performance, stating, "I am encouraged by our return to order intake growth this quarter, primarily driven by North America." He acknowledged the challenging macroeconomic climate but emphasized the strong margin improvements made possible through the firm's productivity initiatives, robust operational cash flow resulting from enhanced working capital management, and sales growth aligned with their strategies.
Looking ahead, Philips maintains a growth forecast for comparable sales between 3% and 5% for the financial year 2024, while also recognizing the uncertainties that persist. Additionally, the company reaffirmed its guidance for adjusted earnings before interest, taxes, and amortization (EBITDA) within the range of 11% to 11.5%.
In an anticipation of continued progress, Bhattacharya informed analysts that sales growth in the third quarter is expected to align closely with the performance of the first half of the year, buoyed by the impressive 11% growth witnessed in the third quarter of 2023. Shares of Philips were trading at 28.18 euros, reflecting a change of +2.42 euros and a percentage increase of +9.39%..