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US Cancels Ventilator Order From Philips Forcing The Firm To Low 2020 Earnings Forecast

US Cancels Ventilator Order From Philips Forcing The Firm To Low 2020 Earnings Forecast
The Dutch medical equipment maker Philips was forced to cut its 2020 earnings outlook because of cancellation of an order for 43,000 ventilators that it was to deliver to the United States Department of Health.
This decision was taken after the publication of a report by the US Congress House Subcommittee on Economic and Consumer Policy in which it was revealed that the Philips had been overpaid by at least $500 million by the administration of the US President Donald Trump.
No comment on the alleged profiteering from the deal was made by Philips. 
The US had made contracts with a number of companies for supplying of a total of 187,000 ventilators to the strategic national stockpile for ventilators which were to be used for the treatment of patients infected with the novel coronavirus pandemic and that list also included Philips.
In order to meet the sudden increase in demand for its ventilators because of the order from the US government Philips had increase manufacturing capacity at its plants in Pennsylvania and California, the company  said on Monday. But no those facilities will deliver only 12,300 hospital ventilators to the US Department of Health and Human services by the end of the current year. to the U.S. Department of Health and Human services.
For about 30,700 excess ventilators that are now an excess for it, the company will try to find other buyers, said a spokesman for Philips.
There was a slight drop in the share of the company in Europe after the news.
"We continue to expect to return to growth and improved profitability in the second half of the year, starting in the third quarter," Philips chief executive Frans van Houten said.
In July, the company had said that it expected that it would be able to achieve an "adjusted EBITA (earnings before interest, taxes, and amortisation) margin improvement" this year because of the surge in orders for medical equipment due to the pandemic.
But on Monday, Philips said that it now expects "to deliver modest comparable sales growth with an adjusted EBITA margin of around the level of last year".
In the April-June quarter, the core earnings of Philips dropped by almost a quarter to 418 million euros ($497.25 million) with a drop in sales of 6 per cent to 4.4 billion euros.
The news of the cancellation of the order by the US administration was a slight negative as analysts were already expecting flat margins this year, said ING, which rates Philips shares "hold", in a note to client.

Christopher J. Mitchell

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