(Reuters) -Dutch health technology company Philips announced forecast-beating earnings and a share buyback on Monday but failed to allay investor concerns over the rising cost of a recall of its respiratory devices.
The shares slipped more than 6% in afternoon trading, touching their lowest in 10 months and wiping 2.7 billion euros ($3.18 billion) off the group’s stock market value.
Philips is working to repair and replace up to 4 million respiratory devices and ventilators it recalled in June due to a foam part that might degrade and become toxic, potentially causing cancer.
Though Philips has booked 500 million euros in provisions over the last two quarters as it looks to repair and replace the devices, this does not cover the possible costs of litigation from a number of class action lawsuits.
The U.S. Food and Drug Administration (FDA) last week classified the recall of Philips’ breathing devices and ventilators as the most serious type of recall, saying their use may cause serious injuries or death.
The agency added that more than 1,200 complaints and 100 injuries had been reported.
“The business is doing fine, but the focus at the moment is purely on the issues on the sleep and respiratory business,” ING analyst Marc Hesselink said, adding that the uncertainties were “holding the stock hostage”.
The company aims to ramp up production of its replacements and repair kits from 55,000 to 80,000 per week by the start of the fourth quarter, it said on a call with analysts, although it is yet to obtain a green light from the FDA on the replacement materials.
Once approved, it expects the process of repairing and replacing the machines to take up to 12 months.
Chief Executive Frans van Houten told analysts that though regulators’ assessment of the replacement devices could take some eight weeks, Philips was already producing the machines and shipping them to warehouses to speed up deployment.
“Patients are wanting to get this dealt with as soon as possible, because not using the therapy is also giving a lot of discomfort and harm,” van Houten said.
Philips announced a 1.5 billion euro share buyback and though it narrowed its profit margin guidance to the bottom of its previous range, its quarterly core profit jumped to 532 million euros, surpassing an average analyst forecast of 519 million.
($1 = 0.8481 euros)
(Reporting by Sarah Morland in GdanskEditing by Anil D’Silva and David Holmes)
