Shares of Dutch medical equipment giant Philips (PHG) fell more than 16% on Monday after the company cut its sales outlook due to continued weak demand in China.
The company reported sales of $4.6 billion for the third quarter that ended Sept. 30, falling short of Wall Street’s expectations of $4.9 billion. Phillips beat earnings per share by more than 14%, reporting $0.32 versus expectations of $0.28.
Despite the margin increase in the quarter, Philips expects sales growth to be 0.5% to 1.5%, up from 3% to 5% for the year. However, markets outside of China will maintain their initial outlook. This reflects the impact the single market has had on the company this year.
The stock’s decline was the biggest single-day loss in 26 years and comes after a major recall of ventilators used to treat sleep apnea weighed on the company’s stock price over the past few years. The move comes as the company is regaining its footing.
CEO Roy Jacobs told Yahoo Finance in an interview that North America is a key area for growth despite a weak Chinese market.
“We are seeing very strong sales momentum, particularly in North America, as we see solid order flow and a growing underlying demand for innovation in hospitals. “Because there aren’t any,” he said. Jacobs.
This innovation includes a number of medical devices connected to artificial intelligence that help clinicians process tasks faster and process images more quickly to help diagnose patients.
Chairman of the Supervisory Board of Philips Feike Szybesma (CL) and CEO of Koninklijke (CR) Philips Roy Jacobs at the meeting of the Healthcare Technology Group Philips in Amsterdam on May 7, 2024. Attend the annual general meeting. (Ramon VAN FLYMEN/ANP/AFP via Getty Images) · RAMON VAN FLYMEN via Getty Images
The expansion of the North American, particularly US, market is evidenced by the negative impact on large health insurance companies. Increased usage is putting pressure on profits as pent-up demand from the pandemic continues to seep into hospital systems. The company also recently received FDA clearance for the use of AI in enhanced cardiovascular ultrasound testing.
Jacobs said that when comparing the past three years, hospital medical device usage and sales decreased in 2022, but began to increase slightly in 2023. This year has been the best year since the pandemic.
“The number of surgeries is still increasing and the number of patients requiring imaging tests is also increasing, but unfortunately the waiting list is long,” he said of the North American market.
Jacobs said countries other than the U.S. are also relying on innovative solutions to address shortages of qualified doctors and help modernize outdated systems.
Meanwhile, Jacobs remains bullish on China, a market the company has been in for years, given the short-term turnaround.
“In fact, we think China will come back. It’s not a matter of if, but when,” he told Yahoo Finance, repeating comments from last quarter.
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