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Philips blames China and supply logjams for latest guidance cut

Shares in Royal Philips fell more than 10 percent after the health tech company cut its guidance for the second time this year, blaming China’s coronavirus pandemic lockdowns.

The medical device maker on Monday lowered its estimate of full-year revenue growth to between 1 and 3 percent, compared to an earlier forecast of between 3 and 5 percent.

“Production at several of our factories, as well as that of our suppliers in China, was suspended for two months, exacerbating the global supply chain and cost challenges,” said Frans van Houten, CEO of Philips.

“The impact of the Covid lockdowns had a significant impact on our business in China, where comparable store sales and order intake declined nearly 30 percent in the quarter,” he added.

The earnings write-down marks the latest setback in a difficult period for Philips, which saw its share price plunge 60 percent from its high after announcing a costly ventilator recall.

For the three months to June 30, the company reported a 7 percent year-over-year revenue decline to €4.18 billion, which Philips attributed to supply chain bottlenecks, lockdowns in China, inflationary pressures and the fallout from the Russian invasion of Ukraine.

The group reported earnings before interest, taxes and amortization of €216 million for the quarter, falling short of analyst expectations of €324 million.

Shares of Amsterdam-listed Philips fell 10.6 percent to €19.42 on Monday, a nine-year low.

Line chart of price (€) showing Philips shares rough through 12 months

Van Houten insisted the picture would improve later in the year, saying that Philips had “stepped up actions on productivity, pricing and strengthening supply chain resilience to mitigate the ongoing headwinds and associated risks”.

A stronger order book and improved supply chains “give me confidence that we will resume growth from the third quarter,” he added, as well as improved profitability “in the second half of the year.”

Monday’s target discounts follow a profit warning from Philips in January. The company was forced to recall millions of medical devices containing a defective part due to concerns that patients may have been harmed by inhaling particles of toxic chemicals.

The group said Monday that subsidiary Philips Respironics was making “solid progress” with its program to repair or replace the devices, which are primarily used to aid breathing in patients with sleep apnea.

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