Philips Q3 core profit tops forecasts despite EUR288 million settlement charge weighing on net income

Philips (PHG.US) reported better-than-expected earnings for the third quarter of 2026, supported by higher sales and tighter cost controls.

The company posted sales of EUR4.393 billion, up 2% on a nominal basis and 3% on a comparable basis, slightly below market expectations of roughly EUR4.41 billion. Adjusted diluted earnings per share came in at EUR0.40, compared with EUR0.36 a year earlier.

Comparable order intake rose 8%, driven by broad-based demand in the Diagnosis & Treatment segment. Adjusted EBITA reached EUR569 million, with a margin of 13.0%, up 70 basis points year over year and well above the market forecast of 11.9%. Operating cash flow was EUR544 million and free cash flow was EUR384 million, a substantial improvement from a year earlier.

One-off items in the quarter significantly weighed on reported profit: its Respironics unit reached an agreement in principle with the U.S. Department of Justice over the ventilator recall, prompting the company to book a EUR288 million provision. As a result, operating income fell to EUR165 million and net income dropped to EUR28 million.

Chief Executive Roy Jakobs described the move as an important step toward resolving the fallout from the recall, with the settlement payment expected in the first quarter of 2027. In addition, the Enterprise Chamber of the Amsterdam Court of Appeal in October rejected a request by some investors to launch a corporate governance investigation into the recall matter.

By segment, comparable sales in Diagnosis & Treatment were flat, as growth in image-guided therapy was offset by a decline in precision diagnosis, which the company attributed mainly to the timing of ultrasound sales and lower sales in China. Connected Care comparable sales grew 5%, while Personal Health comparable sales rose 8%.

The company reiterated its full-year 2026 guidance: comparable sales growth of 3% to 4.5%, an adjusted EBITA margin of 13.5% to 14.0% (including about 1 percentage point of benefit from U.S. tariff refunds), and free cash flow of EUR1.5 billion to EUR1.7 billion.