Philips (NYSE:PHG) reported fourth-quarter results that felt the impact of its massive Respironics recall and supply chain issues.
The company also said it is cutting 6,000 jobs worldwide. The layoff comes on top of a workforce reduction of 4,000 that Philips announced in October. The Dutch medtech giant continues to work through a recall involving millions of CPAPs and other respiratory devices. (Here is a full timeline of the recall.)
Half the cuts will take place this year. The remainder will be done by 2025. The layoffs represent about 13% of Philips’ global workforce.
“Right now, it is very important to lead with realism. I am also a great believer in knowing where I want to go and having a clear plan to get there, a plan that people can understand and have confidence in,” CEO Roy Jakobs said during the company’s earning’s call.
Despite its struggles, Jakobs said he embraced the challenges and that he he was excited about the company’s future. He said he needed to take firm action so that Philips could better execute and focus on its growing HealthTech business.
The company announced expected growth in 2023. However, that growth excludes the potential financial impact of the recall.
Still, shares of PHG were up more than 5% at $17.98 apiece by afternoon trading today. MassDevice‘s MedTech 100 Index — which includes stocks of the world’s largest medical device companies — rose more than 9%.
The Amsterdam-based company posted losses of €105 million ($114.3 million) for the three months ended Dec. 31, 2022. That amounts to losses of €0.13 (14¢) per share on sales of €5.422 billion ($5.9 billion).
Philips slid into the red in Q4
Philips saw a large bottom-line slide into the red compared to this time last year. In the fourth quarter of 2021, the company brought in profits of €151 million ($164.4 million). It attributed its 9.7% sales growth to component supply improvements. However, it said its supply chain issues “remain challenging.”
Many of Philips’ problems stem from the Respironics recall that began in 2021. The company recently updated on its test results for the first-generation DreamStation sleep therapy devices. It said it completed close to 90% of the production required to deliver replacement devices.
To expedite the completion of its recall, Philips Respironics said it plans to increase the proportion of new replacement devices. Jakobs’ presentation showed Philips gradually restoring its place in the respiratory devices market through 2025.
The company remains subject to a U.S. Dept. of Justice investigation and a number of class-action lawsuits and personal injury claims. It also remains in ongoing discussions with the FDA over a proposed consent decree. Philips said that, as a result of all the ongoing litigation, it made no provisions regarding financial and operational impact for these matters.
A ‘difficult year’ for Philips
“2022 has been a very difficult year for Philips and our stakeholders, and we are taking firm actions to improve our execution and step up performance with urgency,” said CEO Roy Jakobs. “When I took over as CEO in October 2022, I said that our priorities are first to further strengthen our patient safety and quality management and address the Philips Respironics recall; second, to improve our supply chain reliability to convert our order book to sales and improve performance; and third, to simplify how we work to increase agility and productivity.
“This is a step-by-step improvement journey supported by our leading market positions, extended customer base, meaningful innovations, ecosystem partnerships, strong brand, and talented employees.”
Philips said that it projects low-single-digit comparable sales growth in 2023. This comes considering the slowing of consumer demand and the gradual improvement of its order book conversion. It expects a slow start to this year with improvements throughout.
Its guidance excludes the impact of the ongoing recall. That includes the consent degree talks, litigation and investigations.