Dutch manufacturer Philips has become the latest company to cut its annual earnings outlook because of supply chain snags, adding to worries for investors awaiting more information on the fallout from the huge recall of faulty respiratory devices.
The “intensified” supply chain issues from a semiconductor shortage to a global shipping network in chaos made it harder to deliver on orders. Sales slipped 7.6 per cent in the third quarter compared with a year earlier. That pressure is expected to continue until at least the end of the year.
A recall of devices used by sleep apnoea patients that have a faulty sound abatement foam that can degrade and become toxic also hampered revenues. The group has produced 750,000 repair and replacement kits out of an estimated total of approximately 3.5m affected devices worldwide.
As a result, Philips expects low-single-digit growth in sales and a “modest” profit margin improvement this year, trimming its previous guidance.
The medical device recall has slashed about €10bn off of the Dutch group’s market capitalisation after shares fell about a quarter since April when the problem was first discovered.
The group previously said it expects a €500m impairment charge for the replacement process but investors are nervous about legal settlements related to possible carcinogenic effects due to the machines. Philips said it is “unable to reliably estimate” any legal liabilities.
“We continue to see uncertainty related to Covid-19,” said Frans van Houten in a statement on Monday. “Supply chain volatility has intensified globally, which already led to longer lead times to convert our strong order book to revenue in the third quarter, and we expect this headwind to continue in the fourth quarter.”
Adjusted earnings before interest, taxes and amortisation slipped to €512m, compared with €684m in the third quarter of 2020. Its sales of its domestic appliances unit, which it concluded its major divestments, was completed to give the Dutch group a €2.5bn gain after tax and other costs.