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Philips shares drop as new order decline clouds rosier outlook

Dutch health technology company Philips presents the company's financial results for the fourth quarter in Amsterdam

By Bart H. Meijer

AMSTERDAM (Reuters) -Shares of Dutch health technology company Philips dropped 4% on Monday as strong quarterly earnings and an upgraded outlook for 2023 could not offset worries about a continuing fall in new orders.

Philips' core profit more than doubled to 457 million euros ($483.3 million) in the third quarter, while comparable sales were up 11% at 4.5 billion euros as demand for its medical scanners, patient monitoring equipment and personal health devices increased.

Both metrics easily beat the average estimate of analysts, who predicted adjusted earnings before interest, taxes and amortisation of 389 million euros, on 8% comparable sales growth.

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New orders, however, were down 9% from last year, as demand from China continued to cool from a pre-pandemic boom and supply chain problems persisted.

Philips in July guided for an improvement in orders in the second half of the year.

CEO Roy Jakobs on Monday said this guidance had been distorted by new government regulations that have since been introduced for the Chinese health care market.

"This regulation was not yet announced then, that has been a big distorting factor in the third quarter," Jakobs said in a phone interview with Reuters.

"Still we are working hard to improve order intake and we want to see the benefits in the fourth quarter."

Despite the drop in orders, Philips said it now expected 6% to 7% comparable sales growth over 2023, with a profit margin (adjusted EBITA) of 10%-11%.

Its previous outlook guided for mid-single digit sales growth with a high single-digit profit margin.

ING analysts said that although the new outlook would raise expectations for core profit over 2023, it did not give much confidence for growth in the near term.

"The increased guidance implies a much more modest performance in the fourth quarter of low single-digit growth and flat margin year on year. This could point to more modest improvement in 2024," ING analyst Marc Hesselink said in a note.

The Amsterdam-based company has already lost around 70% of its market value in the past two years, as it continues to grapple with the fallout of a global recall of millions of respirators used to treat sleep apnea.

Earlier this month, its shares dropped around 10% after the U.S. Food and Drug Administration said it was still unsatisfied with the handling of the recall and ordered Philips to conduct additional risk testing.

Philips said it had agreed to this request and said an investigation by the U.S. Justice Department into the recall was still ongoing, without providing further detail.

($1 = 0.9456 euros)

(Reporting by Bart Meijer; Editing by Jacqueline Wong, Varun H K and Sharon Singleton)