Shares of Royal Philips NV experienced a significant surge on Monday following the announcement of a much lower-than-expected settlement in the U.S. related to its Respironics ventilators. The Dutch health-technology group’s stock, which also trades in the U.S., skyrocketed by 33% in Amsterdam, marking what is likely to be the largest one-day percentage gain ever for Philips shares, according to FactSet Research.
The company revealed that it would pay $1.1 billion to resolve personal injury and medical monitoring litigation in the U.S., a figure significantly below the $2 to $4 billion range that some analysts had anticipated. Worst-case fears had even reached $10 billion. The payments are slated for 2025 and will be funded from Philips’ cash flow generation. In the first quarter of the year, the company had already taken a provision of €982 million ($1.05 billion) related to the settlement.
Philips Respironics, however, has not admitted any fault or liability regarding injuries caused by its devices. Roy Jakobs, CEO of Royal Philips, emphasized that the settlement represents a significant milestone and provides clarity on the company’s path forward.
The agreement with insurers for a €540 million payout related to the Respironics recall is also noteworthy. This payout will be recognized in Philips’ second quarter, with the payment expected in 2024.
The positive news follows Philips’ decision to halt sales of its sleep therapy and respiratory care devices in 2021 due to a foam-related recall. Earlier this month, the company had reached a pact with the U.S. regarding those device sales, further contributing to investor confidence.
Despite these developments, Philips reported a first-quarter net loss of €999 million, widened from €665 million in the same period a year earlier. This wider loss includes the provision for Respironics. However, sales remained steady at €4.138 billion, in line with consensus estimates.
Looking ahead, Philips maintains its full-year outlook, expecting 3-5% comparable sales growth and an adjusted EBITA margin of 11-11.5%. However, analysts note that the company’s order book remains in negative territory, down 3.8% annually in the first quarter. This sustained decline could potentially impact sales growth over the next 12 to 18 months, as order books account for 40% of the company’s intake.
The settlement with Philips signifies a significant step forward in resolving legal uncertainties that have loomed over the company. Investors and analysts are likely to closely monitor Philips’ performance in the coming quarters to assess the impact of these settlements on its financial health and market position.