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Philips (PHG +13%) soars to its best levels since 2022 despite missing top and bottom-line estimates as investors focus on improving demand and reiterated guidance. The medical and personal health device manufacturer was coming off a quarter headlined by two major developments: resolving its U.S. litigation over certain Respironics products and reiterating its FY24 outlook. With the litigation behind it, PHG was able to divert all its attention to overcoming persistent macroeconomic challenges. While several headwinds clipped Q2 numbers, PHG is confident that underlying demand is improving, keeping it on track toward its FY24 and FY25 goals.

• PHG sustained its comparable sales growth in Q2 at +2.0%, similar to the +2.4% posted in Q1, driven by growth across each segment. Diagnosis & Treatment, primarily comprised of diagnostic imaging and ultrasound products, registered the best growth at 4%. Meanwhile, Connected Care, which includes the Respironics banner, and Personal Health ticked 2% higher. PHG's results came on improving profitability, recording a 100 bp jump in its adjusted EBITDA margins yr/yr to 11.1%.
• Encouragingly, comparable order intake growth increased by +9.0% yr/yr, a considerable turnaround from the -3.8% posted last quarter. Orders and order book account for around 40% of PHG's revs, making it a critical component of its quarterly revenue. The remaining portion of its sales stems from recurring revenue streams, such as services and consumables.
• North America remained a positive standout; management commented that this region has continued to be the strongest market globally. Conversely, China remained a laggard in Q2, registering another yr/yr drop in orders. However, China may be improving. PHG does not expect ongoing anti-corruption measures, which have impacted approval cycles, to not hurt structural demand. Additionally, the company anticipates China will gradually contribute to order growth over the coming quarters.
• Meanwhile, considering the broader business, PHG is optimistic that its portfolio is positioned to capitalize on current tailwinds, including global hospital staffing shortages. Management warned that the recovery in China was hard to predict. However, the company anticipates that its strength will persist across North America and other international markets. As such, despite the top and bottom-line misses in Q2, PHG was confident in hitting its FY24 financial goals, including comparable sales growth of +3-5% and adjusted EBITDA margins of 11.0-11.5%.

As the first quarter since the cloud of U.S. litigation cleared, PHG's Q2 results positively reflected its ability to lean on its geographic diversity and competitive strengths, delivering healthy numbers despite global uncertainty. There are still lingering issues, namely China, where consumer spending has remained weak and may take an extended period to recover. However, the resilience of North America is encouraging, as it allows PHG to stay on track toward its longer-term financial targets and possibly keep buyers in control.