StockBeat: Philips Set to Ride Wave of Orders for Medical Gear

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Investing.com — One of the sectors you would expect to do better than most out of the current pandemic is makers of healthcare equipment. Results out from Philips this morning back that up.

Koninklijke Philips (AS:PHG) shares rose 7.2% to a seven-week high after the company reported a surge in demand from healthcare systems around the world for its ventilators, patient monitors and related equipment.  

The prospect of turning those orders into sales later in the year more than outweighed the negative impact of a 2% drop in group sales and a drop in underlying profit margin to 5.9% from 8.8% a year earlier.

The news pushed it at the top of both the local and regional benchmark indices on a day when volatility fell to levels last seen in happier, pre-pandemic times. The Stoxx 600 was up 0.3%, while the Dutch AEX was up 1.0%. 

“Assuming we can convert our existing order book for the Diagnosis & Treatment and Connected Care businesses as planned, elective procedures normalize, and consumer demand gradually improves, we aim to return to growth and improved profitability for the Group in the second half of the year,” chief executive Frans van Houten said in a statement.

The company said it’s spending 100 million euros ($109 million) to ramp up production volumes for key equipment “steeply”, apparently anticipating that demand will go beyond immediate treatment needs and will continue for some time above pre-pandemic levels even after the crisis passes, as healthcare systems correct what – in hindsight – appears to have been a systematic shortage of capacity.

Even so, the company is far from immune to the damage caused by the pandemic. Sales of its personal care products, such as toothbrushes and razors, tumbled 12% during the quarter (worse still, hairdressers across Europe are just starting to reopen, pre-empting what could have been a surge in sales of hairclippers). Non-pandemic related medical products such as ultrasound and x-ray equipment also saw sales fall.

The company, which said it saw Covid-19 impacts spread gradually from one region to another in the first quarter, said it expects impacts “across all our geographies” in the current one, resulting in “a steep revenue decline for our Personal Health businesses and a sizable high-single-digit decline for our Diagnosis & Treatment businesses, partly offset by a significant increase in revenue of our Connected Care businesses.”

While it pulled its existing forecasts for 2020, it was still confident enough to forecast “modest” comparable sales growth and underlying margin improvement for the year.

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