Philips Q1 Earnings Miss: Will Weak Outlook Drag the Stock Down?

Koninklijke Philips N.V. PHG reported earnings of €0.08 cents per share in the first quarter of 2025, which increased from the year-ago quarter’s loss of €1.07 per share.

The company’s sales decreased 1% on a year-over-year basis to €4.1 billion.

Comparable sales declined 2% year over year, including a double-digit decline in China. The 1% growth in Personal Health was more than offset by a 4% decline in Diagnosis & Treatment on the back of a high comparison base. Connected Care sales were in line with the prior year.

Further, Philips’ comparable order intake increased 2% year over year in the reported quarter despite a double-digit decline in China. 

Koninklijke Philips N.V. Price, Consensus and EPS Surprise

Koninklijke Philips N.V. price-consensus-eps-surprise-chart | Koninklijke Philips N.V. Quote

Sales declined 4% year over year on a comparable basis in growth geographies. Growth geographies primarily decreased as a result of a double-digit decline in China and a high comparison base in Diagnosis & Treatment. The decline was partly offset by an increase in other Growth geographies. 

Comparable sales in Mature geographies declined 2% year over year, mainly due to a high comparison base in Diagnosis & Treatment.

PHG’s Segmental Update

Diagnosis & Treatment revenues declined 3% year over year from the year-ago quarter to €1.96 billion. Comparable sales declined 4% year over year, primarily due to a double-digit decline in China, which was offset by strong growth in other regions. While Image Guided Therapy saw solid growth, it was offset by a decline in Precision Diagnosis.

Connected Care revenues increased 1.5% year over year to €1.18 billion. Comparable sales were flat from the year-ago quarter.

Personal Health revenues grew 3% year over year to €811 million. Comparable sales increased 1%, despite a double-digit decline in China, mainly driven by strong growth across the International Region and slight growth in the United States.

Other segment sales amounted to €140 million, down 10.8% on a year-over-year basis.

PHG’s Operating Details

Gross margin expanded 130 basis points (bps) on a year-over-year basis to 45.1% in the reported quarter.

General & administrative expenses, as a percentage of sales, were 3.9%, which expanded 60 bps on a year-over-year basis. Moreover, selling expenses were flat year over year at 26.5%. Research & development expenses increased 100 bps to 11.2%.

Restructuring, acquisition-related and other items amounted to a net gain of €143 million compared with €1,139 million a year ago.

Operating model productivity, procurement and other productivity programs delivered savings of €42 million, €46 million and €59 million, respectively. This resulted in total savings of €147 million.

Phillips’ adjusted EBITA — the company’s preferred measure of operational performance — declined 8.8% year over year to €354 million. EBITA margin contracted 80 bps on a year-over-year basis to 8.6% in the reported quarter.

Diagnosis & Treatment’s adjusted EBITA margin expanded 30 bps on a year-over-year basis to 9.5%.

Connected Care’s adjusted EBITA margin was 3.5% in the reported quarter, which contracted 290 bps year over year.

Personal Health’s adjusted EBITA margin remained in line on a year-over-year basis at 15.2%.

PHG’s Balance Sheet

As of March 31, 2025, Philips’ cash and cash equivalents were €1.19 billion compared with €2.4 billion as of Dec. 31, 2024. 

Total debt was €7.568 billion compared with €7.639 billion as of Dec. 31, 2024.

Operating cash outflow was €933 million compared with the year-ago quarter’s operating cash outflow of  €171 million.

In the quarter under review, free cash outflow was €1,091 million compared with the year-ago quarter’s free cash outflow of €336 million.

PHG Initiates Weak 2025 Guidance

Philips stock has lost 4.8% year to date compared with the Zacks Medical sector’s decline of 2.4%. 

PHG’s 2025 guidance can be negatively impacted by announced tariffs, including US-China and global measures, and the scheduled resumption of US tariffs on July 9. These factors may also put downward pressure on PHG’s shares.

Philips expects to deliver 1-3% of comparable sales growth.

Further, the adjusted EBITA margin is expected to be between 10.8% and 11.3%

Free cash flow is expected to be slightly positive in 2025, after the payout of €1,025 million Philips Respironics recall-related medical monitoring and personal injury settlements in the United States.

Previously, Philips expected to deliver 1-3% of comparable sales growth.

Further, adjusted EBITA margin is expected to be 30-80 bps to 11.8%-12.3%

Philips expects a free cash flow of €900 million.

PHG’s Zacks Rank & Stocks to Consider

Philips currently has a Zacks Rank #3 (Hold).

Affirm AFRM, ACI Worldwide ACIW and Baidu BIDU are some better-ranked stocks that investors can consider in the broader sector. While Affirm sports a Zacks Rank #1 (Strong Buy), ACI Worldwide and Baidu presently carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Affirm shares have lost 16.3% year to date. AFRM is set to report its third-quarter fiscal 2025 results on May 25.

ACI Worldwide shares have gained 4.9% year to date. ACIW is set to report its first-quarter 2025 results on May 08.

Baidu shares have gained 8.2% year to date. BIDU is set to report its first-quarter 2025 results on May 21.

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