PHG - Philips stock slumps 10% as Q2 sales hit by China lockdown supply woes; eyes improvement in H2

Philips ( NYSE: PHG ) stock fell ~10% on July 25 premarket after the company said Q2 sales declined amid supply shortages and prolonged lockdowns in China.

Q2 comparable sales declined -7% Y/Y to €4.18B. Adjusted income from continuing operations attributable to shareholders per common share fell -65% Y/Y to €0.14.

"Our performance in the second quarter was impacted by global, industry-wide challenges including supply shortages, COVID lockdown measures in China, inflationary pressures and the Russia-Ukraine war, resulting in a comparable sales decline of 7%, with an Adjusted EBITA margin of 5.2%," said f Royal Philips CEO Frans van Houten.

The CEO added that the lockdown impacted its business in China, where comparable sales and order intake declined almost 30% in the quarter.

"Production in several of our factories, as well as those of our suppliers in China, was suspended for two months, which exacerbated the global supply chain and cost challenges," said van Houten.

Sales from Diagnosis & Treatment businesses declined 4% Y/Y to €2.16B.

Meanwhile, Connected Care businesses revenue fell -13% Y/Y to €1.06B. The company said the decline was mainly due to the Respironics field action and supply chain headwinds.

In April, Philips had issued a recall related to power issue in certain ventilators which could cause them to shut down unexpectedly. In June the company said it was recalling more than 56K V60 and V60 Plus ventilators in the U.S. As of April 14, there have been reports of one death and four injuries related to the devices.

Sales from the Personal Health businesses' fell -5% Y/Y to €831M. The company said double-digit growth in North America was more than offset by double-digit declines in China and Russia.

Philips noted that it has placed in measures to improve supply chain resilience and pricing; and increased productivity program to €500 per year through 2025.

Outlook :

"Looking ahead to 2023 and beyond, while we continue to see risks and a challenging macro-environment, we expect our supply chain measures to take full effect, resulting in a significant improvement in the conversion of our order book to revenue. Our pricing and increased productivity measures will expand margins," commented Houten.

The company said it revised its full-year 2022 outlook to 1-3% comparable sales growth and around 10%. Adjusted EBITA margin, driven by 6-9% comparable sales growth in H2 2022.

PHG -10.30% to $19.86 premarket July 25

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