Philips Off To Solid Start In 2017, Expects Growth To Accelerate

By Jof Enriquez,
Follow me on Twitter @jofenriq

Philips' HealthTech portfolio powered the company's first quarter performance, and growth is expected to accelerate through 2017, despite weakness in the United States market related to potential healthcare policy changes.

HealthTech, the Dutch conglomerate's new focus since last year, grew 3 percent for the first three months of the year, and drove up total sales to EUR 5.7 billion and net income to EUR 259 million, up from EUR 37 million for the same period last year, according to the quarterly report. Philips maintained its full-year outlook of between 4 percent and 6 percent, despite flat growth in the U.S. market that slightly weighed down overall figures. 

Despite the Trump administration's recent failed legislative attempt to replace and repeal the Affordable Care Act (ACA), lingering uncertainty over the fate of the landmark healthcare law has caused hospital clients to hesitate in placing orders, which dampened the U.S. market, according to Philips' top executive. Growth elsewhere was more than enough to make up for any negative impact, though.

There’s "nothing to worry about – we are confident," Philips CEO Frans van Houten told journalists, according to Bloomberg. "We saw a strong order intake growth in China, India and Europe. That compensates then for the somewhat slower U.S. market."

These backlog orders will translate to sales revenue in the coming months, so the company will be able to build off its "solid start" for 2017 and expects to accelerate growth going forward, he added.

"I cannot exactly predict, if I put my ear to the ground, but I think we may still see more uncertainty in the second quarter,” van Houten said, according to Bloomberg. “Discussions in Washington are still going on around accountable care."

Nevertheless, van Houten believes Philips is well-positioned in meeting the needs of hospital clients as they navigate healthcare policy changes and trends in healthcare delivery.

"I was in New York talking to a CEO of a large hospital system last week. They have a large exposure to Medicare and Medicaid patients. And he said, whatever happens to the ACA, I need to proceed in rolling out population health because these patients will come to my institution anyway, and I better be proactive about it rather than reactive. And I thought it was a nice kind of indication where hospital enterprises are in their thinking. So it may take a few years before this is the kind of very large market that we all expect, but I have absolute conviction that it's an important market for the future," he told analysts during the earnings call.

He also highlighted the company's Azurion image-guided platform, eICU services, Xperius ultrasound, and the IntelliSpace Enterprise Edition healthcare informatics solution as some of the new offerings that have piqued the interest of hospitals. Also, for older product lines like cardiac ultrasound, in which Philips considers itself a market leader but acknowledges slowing growth, van Houten says the company is expanding to "adjacencies," such as OB/GYN and GI ultrasound, to counteract sluggishness.

"We also had to step up investments in the channel, but I have high confidence in this strategy, and that also will result then in higher growth in the second half of the year," said van Houten.

With regards to deal-making, he said that "we will have an open eye for acquisitions" but "it all needs to work out in terms of returns and portfolio fit, and we will certainly not rush into any deals."