US government recalls larger order for Philips

Philips (AS: PHG) said the U.S. Department of Health canceled most of an order for 43,000 ventilators, causing the Dutch medical device maker to cut its profit outlook for 2020. The termination follows a July report by the US Congress' Economic and Consumer Policy Subcommittee that found that the White House overpaid Philips at least $ 500 million. Philips denied any profiteering in ventilators. Philips was one of several companies contracted by the US to supply 187,000 ventilators for strategic national inventory to treat patients affected by COVID-19. The company expanded its capacities in Pennsylvania and California to meet sudden demand, but said in a statement Monday that it will only ship 12,300 hospital ventilators to the U.S. Department of Health by the end of the year. A spokesman said he expected Philips to find other buyers for the 30,700 surplus ventilators. Philips' shares, which have fallen 4.3% so far this year, fell 0.6% to EUR 40.84. "We continue to expect to return to growth and improved profitability in the second half of the year, starting in the third quarter," said Philips CEO Frans van Houten. Philips said in July that the surge in medical device orders would enable the company to "improve its adjusted EBITA margin (Earnings Before Interest, Tax, and Amortization)" this year. However, on Monday he said he expects "modest comparable revenue growth with an adjusted EBITA margin roughly on par with last year". Philips' core earnings fell nearly a quarter from April through June to 418 million euros ($ 497.25 million), while sales fell 6% to 4.4 billion euros. ING, which rates Philips shares as a "hold," said in a note that the news was slightly negative as analysts expected flat margins for this year.