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Philips to halt CPAP sales in the U.S. as it takes $393 million provision

By Steve Goldstein

Philips on Monday said it will halt the sales of new sleep-therapy devices in the U.S., as part of a broader settlement that led the company to take a EUR363 million ($393 million) provision in the final quarter of the year.

Philips said it will not sell any new Continuous Positive Airway Pressure or Bilevel Positive Airway Pressure sleep therapy devices or other respiratory care devices in the U.S., until it meets the requirements of a consent decree with the U.S. Justice Department that is being finalized but will need court approval.

Philips will be able to service existing machines and sell accessories, and the restrictions will not apply outside the U.S. Analysts at UBS estimate the consent decree will lead to a roughly EUR400 million sales headwind.

Philips said the new provision covers remediation activities, inventory write-downs and onerous contract provisions.

Philips has had to recall millions of sleep therapy and respiratory machines because of the risk that the foam used in the devices breaks down and can be swallowed. More recently, the Food and Drug Administration reported the risk of overheating in newer devices.

The settlement terms were released as part of its fourth-quarter financials, in which it swung to a EUR38 million profit while sales fell 7% to EUR5.06 billion. On a comparable basis, Philips said sales fell by 1% and orders fell by 3%.

Philips expects to deliver 3% to 5% comparable sales growth and an adjusted EBITA margin between 11% and 11.5% this year, after a 10.5% adjusted EBITA margin excluding provisions in 2023.

Philips shares (NL:PHIA) (PHG) fell 7% in afternoon Amsterdam trade. The stock has gained 23% over the last 52 weeks.

Analysts at Citi called the fourth-quarter results "mixed" but said the consent decree provides "much-needed clarity."

-Steve Goldstein

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01-29-24 0735ET

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