Philips falls 9% as weak orders, China concerns overshadow outlook hike

By Lucie Barbier and Alessandro Parodi

July 28 (Reuters) - Philips shares fell 9% on Tuesday after the healthcare technology group reported weaker-than-expected orders and warned of a more challenging environment in China, overshadowing an improved full-year margin outlook.

The Dutch maker of medical equipment and consumer health products on Monday raised its profitability guidance after reporting a second-quarter core profit margin above analysts' expectations, helped by U.S. tariff refunds. However, comparable order intake fell 1%, which the company attributed largely to delays in closing several large U.S. contracts.

"That's not a miss, but rather a timing issue," Chief Executive Roy Jakobs told journalists. "Some of these deals are lumpy. They are very large in nature — multi-hundred-million or multi-million, multi-year contracts — and therefore you cannot exactly pinpoint when they will close."

Investors appeared unconvinced, sending Philips shares to their lowest level in a year and putting them on course for their steepest one-day decline in 17 months.

The results underscored investor concerns about whether Philips can sustain its turnaround as order growth remains uneven and conditions in China deteriorate.

Analysts at RBC said the improved outlook was encouraging but warned that the margin improvement required in the second half of the year, particularly in the fourth quarter, would be more difficult to achieve.

Excluding U.S. tariff refunds, margins in Philips' Diagnosis & Treatment unit declined due to cost inflation, tariffs and an unfavourable sales mix. Finance chief Charlotte Hanneman said adjusted EBITDA margin in the third quarter would be below the prior-year level.

Philips also continued to face pressure in China, particularly in its Diagnosis & Treatment business.

China introduced new rules in July requiring public medical institutions to buy equipment through centralised procurement programmes. Jakobs said the policy had disrupted the market and weakened demand, adding that Philips expected a more structurally challenging environment in the country.

He said the new rules could delay purchasing decisions and put further pressure on margins unless Philips can maintain premium pricing through innovation and differentiated products.

(Reporting by Lucie Barbier and Alessandro Parodi, editing by Milla Nissi-Prussak and Matt Scuffham)