Philips misses fourth-quarter forecasts, discloses US defibrillator dispute

AMSTERDAM (Reuters) - Medical equipment maker Philips PHG.AS missed forecasts for fourth-quarter earnings on Tuesday and disclosed a dispute with the U.S. Justice Department over heart defibrillators it had sold until 2016, but said the matter would not alter its medium term outlook.

A Philips logo is seen at Philips headquarters in Amsterdam, January 28, 2014. REUTERS/Toussaint Kluiters/United Photos/File Photo

The Dutch company stuck by financial targets of 4 percent to 6 percent average comparable sales growth and a 1 percent improvement in adjusted EBITA (earnings before interest, tax and amortization) margin per year despite the dispute over its defibrillators, used to deliver an electrical shock to restore the heart’s normal rhythm in a cardiac emergency.

A spokesman said the dispute was about Philips’ failure to adhere to U.S. Food and Drug Administration rules for supply chain documentation, and not whether the defibrillators sold by the company were safe or not.

The company has not yet taken a provision for a settlement with the Department of Justice. Van Houten said Philips’ defibrillator business would be “impacted” but the scope was limited, as sales amounted to around 300 million euros annually, compared with group sales last year of 24.5 billion euros.

“What I’m trying to flag ... is that this will not have a major visual impact on our overall results for 2017,” Van Houten said.

At 1417 GMT Philip-s’ share price had recovered some of early losses and were trading 2.8 percent lower at 27.11 euros.

Barclays analysts said in a note that the earnings looked reasonably good apart from the defibrillator issue, and repeated a Neutral rating on shares.

“Any possible impact of uncertainty related to the future of Obamacare did clearly not materialize in Q4,” they wrote.

The company reported fourth-quarter adjusted EBITA of 1 billion euros ($1.08 billion), which compared with 842 million euros in the same period a year earlier. Sales rose 3 percent to 7.24 billion euros.

Analysts polled for Reuters forecast EBITA at 1.04 billion euros and sales at 7.28 billion euros.

ABN Amro analyst Marc Hesselink said in a note the sales miss was mostly because of weaker growth at the company’s Diagnosis & Treatment division, which makes high-end scanners. Hesselink, who rates the shares a ‘hold’, said the EBITA miss was due to higher costs at Philips’ Connected Care division, due to higher investment costs.

In the course of last year Philips sold or floated its lighting businesses, largely completing its shift to becoming a health technology company. It intends to sell its remaining 71 percent stake in Philips Lighting, which reported an increase in earnings on Monday.

The defibrillator dispute comes after another U.S. regulatory problem in 2014, when Philips was forced to suspend production at a plant in Cleveland that made high-end body scanners due to U.S. government concerns over adherence to quality control rules.

The company is still recovering from that incident, which badly dented earnings, with production in Cleveland ramping back up to full capacity over the course of 2015 and margins at its Diagnosis division continuing to recover.

Van Houten said on Tuesday the company was committed to quality and had “over the last years made investments to enable significant progress in this area.”

He said that the difibrillator dispute dates from the same period but did not have the same potential to disrupt the company’s business as the temporary closure of the Cleveland scanners plant.

Reporting by Toby Sterling; Editing by Louise Heavens, Greg Mahlich