Philips has slashed its sales growth forecast after seeing a “significant deterioration” in demand in China in the third quarter, the company said Monday.
Falling sales and orders in China dragged on Philips’ results in the second quarter, but the company had expected the market to stabilize. Instead, the situation in China deteriorated in the third quarter, causing sales and comparable orders to fall 2% globally despite growth in other regions. Declining demand from consumers and hospitals is behind the trend, Philips CEO Roy Jakobs said on a Monday earnings call.
“The industry wide anti-corruption measures and lack of impact of the national renewal program continued to significantly affect order and lead times,” Jakobs said. “This also impacted modalities for shorter lead times, like ultrasound, and therefore had an immediate impact on sales growth in the quarter.”
Philips responded to falling demand from hospitals, plus a double-digit drop in personal health sales in China, by cutting its full-year sales forecast. Philips now expects comparable sales growth of 0.5% to 1.5%, down from 3% to 5% when it shared its second-quarter results in July. The company continues to expect comparable sales growth of 3% to 5% outside of China.
That outlook excludes the impact of legal proceedings and a U.S. Department of Justice investigation into Philips’ Respironics business. The segment was the subject of a consent decree in April that barred Philips from selling certain sleep and respiratory products in the U.S.
Asked by an analyst if the performance reflects Philips-specific issues, Jakobs said “what we see is really a market development.” Philips’ exposure to China is different from its medtech peers because its portfolio includes personal health goods that are affected by falling consumer demand, as well as devices that are hurt by the anti-corruption measures.
Jakobs said “visibility around the continued impact of the anti-corruption measures and timing of the government program remains limited.” That lack of visibility is creating uncertainty about how long the slump will last, but Jakobs said to expect the problems in China to impact the company in 2025. The CEO believes Philips will be well placed to profit when demand returns, pointing to the company’s active sales funnel and “local-for-local approach” to make his case.
Potential Trump tariffs
Asked if Philips is regaining imaging market share it lost in the pandemic, Jakobs said the diagnosis and treatment division achieved “strong” order intake in North America and is “fighting back.”
The CEO said Philips is “quite positive on the trends that we have seen in North America, with sequential strengthening and improvement” but noted “staff shortages in some of the installation capacity.”
Philips has worked to address the supply chain issues that contributed to its share losses. Jakobs cited the supply chain improvements in response to a question about the potential for Donald Trump to put tariffs on medtech imports if he wins the U.S. election, like he did during his term as president. Philips has regionalized its supply chain, Jakobs said, and is prepared for potential changes to the flow of goods.
The company’s share price dropped 17% to 24.34 euros ($26.32) in early trading in Amsterdam.
