LDN - Business

Philips shares surge on US recall settlement news

[April 29, 2024] By Bart H. Meijer

AMSTERDAM (Reuters) -Philips shares surged 35% early on Monday as the medical devices maker announced a smaller-than-expected settlement to resolve claims over recalled breathing devices in the United States.

Philips said it had agreed to pay $1.1 billion to settle all personal injury claims filed in the U.S., ending uncertainty that had slashed its market value over the past three years.

"This settlement is significantly lower than expectations of $2-4 billion and worst case of $10 billion," Barclays analysts said.

"It comes a lot earlier than anticipated and removes an overhang many have worried would linger for years."

Amsterdam-based Philips has grappled with the fallout of its recall of millions of breathing devices and ventilators for three years, as fears of large litigation bills lopped off about two-thirds of its market value.

Its shares were up 35% at 26.60 euros at 0810 GMT, hitting their highest level since April 2022 though still only worth half as much as before the recall started in June 2021.

The devices were recalled because of concerns that foam used in them could degrade and become toxic, carrying potential cancer risks.

CEO Roy Jakobs declined to say whether the bill was smaller than he had feared.

"$1.1 billion is a significant amount, however you put it. This is important to end uncertainty and to provide clarity on our way forward," he told reporters.

Philips is still facing lawsuits in Europe over the devices, but Jakobs said this settlement would end most of the uncertainty for investors.

"Totalling the total U.S. cases that we have now finalized, so economic loss, medical monitoring and personal injury, then the vast majority of claims is actually put to bed."

The company said it did not admit any fault or liability, or that any injuries were caused by its devices.

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The logo of Philips is seen at the company's entrance in Brussels September 11, 2012. REUTERS/Francois Lenoir/File Photo

Philips this month announced the final details of a consent decree reached with U.S. authorities in January, spelling out the improvements it needs to make at its Respironics plants in the United States.

It said it had now also reached agreement with insurers over compensation of 540 million euros ($580 million) for product liability costs, to be received in the second quarter of 2024.

It booked a provision of 982 million euros in its first-quarter results for the settlement payments, which it expects to fund from cash flow next year.

ORDERS AND RESULTS

Philips on Monday also reported its first-quarter earnings, which beat analyst expectations with an 8% jump in adjusted earnings before interest, taxes and amortisation (EBITA) to 388 million euros.

That beat the 361 million euros, roughly stable from a year before, expected by analysts in a company-compiled poll.

Comparable sales growth of 2.4% was in line with expectations, leading to a higher-than-expected 9.4% profit margin.

Order intake, however, continued to fall due to slower sales in China and was 3.8% lower than in the first three months of 2023.

"We started the year in line with our plan," Jakobs said. "With order intake growth outside China turning positive and strong margin improvement."

(Reporting by Bart Meijer; editing by Subhranshu Sahu, Louise Heavens and Jason Neely)

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