Philips shares rocket up after settlement of US respiratory device recall – Yahoo Finance

AMSTERDAM (Reuters) – Shares in Philips soared early on Monday after the medical device maker announced a smaller-than-expected settlement to resolve claims related to recalled U.S. ventilators.

Philips announced it has agreed to pay $1.1 billion to resolve all personal injury claims filed in the United States, ending uncertainty that has depressed its market value over the past three years.

Barclays analysts said: “This settlement is significantly lower than our estimate of $2 billion to $4 billion, and the worst-case scenario of $10 billion.”

“It’s coming much sooner than expected, eliminating an overhang that many feared would remain for years.”

Amsterdam-based Philips has been grappling with the impact of a recall of millions of its respirators and ventilators for three years, with its market value falling by about two-thirds on fears of huge legal costs.

The company’s stock price is up about 45%, near a two-year high, but it’s still about half the price it traded at before the recall began in June 2021.

These devices were recalled over concerns that the foam used could deteriorate and become toxic, posing a potential cancer risk.

Chief Executive Officer Roy Jacobs declined to say whether the bill was smaller than feared.

“No matter how you look at it, $1.1 billion is a significant amount,” he told reporters. “This is important to end the uncertainty and clarify the future direction.”

Philips is still litigating in Europe over the device, but Jacobs said the settlement should remove much of the uncertainty for investors.

“When you add up the total number of U.S. cases that we currently have finalized – economic losses, medical surveillance, personal injuries – the vast majority of claims are actually pending.”

The company said it did not admit any negligence or liability, nor did it admit that its equipment caused the injuries.

This month, Philips announced the final details of the consent decree it reached with U.S. authorities in January, specifying improvements that need to be made at its U.S. Respironics factory.

The company also announced that it has reached an agreement with an insurance company for 540 million euros ($580 million) in product liability costs, which it expects to receive in the second quarter of 2024.

The company recorded a provision for the settlement of 982 million euros in its first quarter results, which it expects to cover from next year’s cash flow.

Orders and results

Philips also announced first-quarter results on Monday, with adjusted earnings before interest, tax, amortization, and amortization (EBITA) up 8% to €388 million, beating analyst expectations.

This was higher than the 361 million euros expected by analysts in a poll compiled by the company, which was largely stable from a year earlier.

Like-for-like sales growth of 2.4% matched expectations and led to a better-than-expected margin of 9.4%.

However, orders continued to decline due to weak sales in China, decreasing by 3.8% compared to the first three months of 2023.

“We started the year exactly as planned,” Jacobs said. “Order growth outside China turned positive, and profit margins improved significantly.”

(Reporting by Bart Meijer; Editing by Subhranshu Sahu, Louise Heavens and Jason Neely)