By Philips, a leading healthcare technology company, announced on Monday that it will temporarily suspend the sales of new sleep-therapy devices in the U.S. This decision is part of a larger settlement that has led the company to allocate €363 million ($393 million) as a provision.
As per the settlement terms, Philips will not offer new Continuous Positive Airway Pressure (CPAP) or Bilevel Positive Airway Pressure (BiPAP) sleep therapy devices, along with other respiratory care equipment in the U.S. This restriction will remain in place until the company fulfills the requirements stated in a consent decree with the U.S. Justice Department, subject to court approval. However, Philips will continue to provide servicing for existing machines and sell accessories.
It is important to note that these limitations are applicable only within the U.S., and sales outside the country will not be affected.
The €363 million provision covers a range of activities, including remediation efforts, inventory write-downs, and onerous contract provisions. This provision is necessitated by the company’s recall of millions of sleep therapy and respiratory machines due to concerns about the foam used in the devices breaking down and potential overheating risks in newer models, as highlighted by the Food and Drug Administration.
In their fourth-quarter financial report, Philips reported a profit of €38 million, despite a 7% decline in sales, amounting to €5.06 billion. On a comparable basis, sales witnessed a 1% decrease and orders fell by 3%.
Looking ahead, Philips projects a comparable sales growth of 3% to 5% and an adjusted EBITA (earnings before interest, taxes, and amortization) margin between 11% and 11.5% for the current year. This follows a 10.5% adjusted EBITA margin, excluding provisions, achieved in 2023.
As news of the settlement broke, Philips shares (PHIA, -5.47%; PHG, -0.83%) experienced a 5% decline during early Amsterdam trade. Nevertheless, the stock has witnessed a growth of 26% over the past 52 weeks.
Addressing the company’s fourth-quarter performance, analysts at Citi described the results as “mixed” but expressed their satisfaction with the clarity provided by the consent decree.
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