Philips opened 15% down on Wednesday: here’s the catalyst

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Shares of Koninklijke Philips NV (NYSE: PHG) slipped nearly 20% this morning after the health technology company predicted a 40% decline in Q4 core profit.

Philips blames supply constraints

Philips now forecast roughly $5.57 billion in comparable sales for its fiscal fourth quarter that translates to nearly $0.40 billion lower than its previous estimate. The Dutch multinational blamed supply constraints for the dovish outlook. CEO Frans van Houten said:

It’s a difficult situation. We had shortages of several components and saw port congestion, sometimes up to two or three weeks. All of this meant our manufactured goods couldn’t reach customers in time.

For the full financial year, it is now calling for a 1.0% annualised decline in comparable sales to $19.60 billion. Another hit came from the recall of ventilators that Philips said resulted in $225 million of additional cost in Q4.

Adjusted EBITA will likely come in at $2.39 billion this year, including $741 million in the fourth quarter. In total, Philips sees close to $479 million in charges for Q4 – a massive increase of $359 million from its previous forecast.

Comparable order intake was up 4.0%

On the plus side, the NYSE-listed company said its diagnosis and treatment segment noted a double-digit growth in the fourth quarter, resulting in a 4.0% increase in comparable order intake. According to CEO Houten:

We are closely working with suppliers and governments to address the shortages in the healthcare supply chain and ensure they recognise the importance of prioritising life-saving medical equipment.

The chief executive warned that supply-wise, things will continue to be difficult in the first half of 2022 but expressed confidence that growth will resume thereafter.

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