Philips shares soar 30% after U.S. litigation settlement far lower than feared

MW Philips shares soar 30% after U.S. litigation settlement far lower than feared

By Barbara Kollmeyer

Shares of Royal Philips NV soared on Monday, after the Dutch health-technology group announced a much lower-than-expected U.S. settlement over its Respironics ventilators.

The stock (NL:PHIA), which also has a U.S. listing $(PHG)$, jumped 33% in Amsterdam after the company said it would pay $1.1 billion to resolve personal injury and medical monitoring litigation in the U.S. The rise in the stock is likely to be the best one-day percentage gain ever for Philips shares, according to FactSet Research.

The payments are expected in 2025, funded from Philips' cash flow generation. The company took a related EUR982 million ($1.05 billion) provision in the first quarter of this year. Philips Respironics hasn't admitted any fault or liability, or injuries caused by Respironics devices.

"The approved consent decree and economic loss settlement, and now the resolution of the personal injury and medical monitoring litigation in the U.S., are significant milestones and provide further clarity on the way forward for Philips," said Roy Jakobs, CEO of Royal Philips, in a statement.

The settlement is far below the $2 to $4 billion some had expected, with worst-case fears reaching $10 billion, said a team of Barclays analysts, led by Hassan Al-Wakeel, in a note to clients.

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

Philips halted sales of Continuous Positive Airway Pressure or Bilevel Positive Airway Pressure sleep therapy and other respiratory care devices in 2021 after a recall over the risk that foam would break down and be swallowed. Its shares climbed earlier this month after Philips completed a pact with the U.S. over those device sales.

Philips also announced an agreement with insurers to a EUR540 million payout for Respironics recall-related product liability, which will be recognized in its second quarter, with a payment expected to be made in 2024.

The maker of consumer electronics, medical imaging equipment and more reported a first-quarter net loss of EUR999 million versus EUR665 million for the comparable period a year earlier. Analysts consensus compiled by Philips was forecasting a profit of EUR64 million.

That wider loss included the EUR982 million Respironics provision. Sales of EUR4.138 billion were lower than EUR4.138 billion a year ago, but within consensus, according to a team of analysts at Jefferies led by Julien Dormois.

For the full year 2024, Philips continues to expect 3-5% comparable sales growth and an adjusted EBITA (earnings before interest, taxes and amortization) margin of 11-11.5%.

Dormois added that Philips' order book is "still in negative territory," with group intake down 3.8% annually in the first quarter, the seventh straight quarter of declines. He said this could "put pressure on sales growth in the next 12 to 18 months" - order books account for 40%.

-Barbara Kollmeyer

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April 29, 2024 04:55 ET (08:55 GMT)

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