Philips posts 1 percent rise in Q1 healthcare sales, as profit hit by restructuring, acquisition costs

Philips announced Tuesday that first-quarter sales in its healthcare business increased 1 percent year-over-year to 2.3 billion euros ($2.5 billion), with growth from imaging systems and customer services partly offset by declines in the patient care, monitoring and informatics segments. Meanwhile, the unit's earnings fell to 65 million euros ($71 million), from 152 million euros ($166 million) in the prior-year period, weighed down by restructuring and acquisition-related costs.

The company reported that order intake in its healthcare division rose 3 percent on a currency-comparable basis, with positive performance in Europe, North America and other growth geographies, which was partially offset by China. CEO Frans van Houten noted Philips faces an economic slowdown in China, while Latin American and the Middle East markets are volatile, adding that Europe is only at the beginning of a "fragile recovery." In Western Europe, equipment order intake grew by high-single digits, and North America rose by 2 percent, while growth geographies reported a low-single-digit increase.

Overall, patient care and monitoring grew by low-single-digits, while healthcare informatics, solutions and services rose by double digits. Order intake for imaging system was flat. Van Houten remarked "we saw positive order-intake growth, despite the challenging healthcare market environment." He noted that "the market for medical equipment in the US is flat," adding that many hospitals in the country are focused on merging their operations to cut costs, rather than on increasing spending on equipment or services. The executive explained that "investments, coupled with negative currency effects, are the main reasons for the low profitability" in Philips healthcare business.

According to van Houten, the performance at Volcano, which Philips bought for $1.2 billion, "was on track in the first quarter." Van Houten added "we also signed a multi-year collaboration agreement with Janssen Pharmaceutical to develop a new handheld blood test." The executive said that the company predicts "modest" comparable sales growth for 2015.

Commenting on the results, ING Bank NV analyst Robin van den Broek noted while Philips’ healthcare business faces a difficult market environment, it will eventually benefit from the digital investments by many hospitals. "Hospitals are currently investing in the IT-infrastructure needed to make the transition, and less in imaging systems," van den Broek said, adding "that hurts now, but longer term Philips can reap the benefits of that." Meanwhile, RBC Capital Markets analysts Andrew Carter and Wasi Rizvi noted "overall, the healthcare turnaround still appears a work in progress and we don’t see first-quarter results marking a turn in investor sentiment towards Philips."

Last month, Philips said it plans to spin off its lighting unit through an initial public offering in the first half of 2016, but that it was also reviewing other options, adding that the proceeds would go in part toward funding growth in its HealthTech business. Later that month, the company announced that it agreed to sell 80.1 percent of its combined LED components and automotive lighting business for about $2.8 billion plus a deferred contingent payment of up to $100 million, with Philips retaining the remaining stake.

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