Royal Philips NV shares tumbled as much as 11% during European morning trading on Tuesday, wiping out all of their gains for the year, after the Dutch health technology company reported a decline in new orders for the second quarter. The weakness was attributed to a number of large contracts in North America being pushed back to the third quarter.
The company's comparable order intake fell 1% year-on-year in the second quarter, breaking a streak of six consecutive quarters of positive order momentum. Jefferies analysts noted in a research report that this renewed negative order trend could constrain revenue growth in Philips's diagnosis & treatment and connected care businesses.
Despite the order weakness, Philips reaffirmed its full-year guidance. It maintained its comparable sales growth target of 3% to 4.5% but cautioned that third-quarter performance is likely to come in at the lower end of that range. The company also upgraded its adjusted EBITA margin forecast by 1 percentage point, to a new range of 13.5% to 14%, thanks to a favorable impact from US tariff refunds. However, Philips expects its third-quarter adjusted EBITA margin to be below the level achieved in the same period last year.
Jefferies analysts said this implies Philips will need to deliver a significant improvement in its fourth-quarter margin to hit its full-year target. Combined with the weaker order momentum and a higher comparison base in the second half of last year, this puts considerable pressure on the company's ability to meet its full-year guidance.
For the second quarter, Philips reported revenue of 4.36 billion euros ($4.96 billion), a 4% increase on a comparable basis. Adjusted EBITA rose to 717 million euros from 540 million euros a year earlier, with the corresponding margin improving to 16.4% from 12.4%.
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