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Philips’ Orders Jump After Settlement Helps Build Confidence

(Bloomberg)

(Bloomberg) -- Royal Philips NV reported a surge in new orders in the second quarter, helping drive the firm’s recovery after it settled US claims linked to faulty sleep apnea devices.

The 9% gain was the first increase in two years, adding to earnings that topped analyst estimates. The shares rose as much as 12% in Amsterdam, the biggest intra-day move since April. The stock is still down around 40% since the start of the recall just over three years ago. 

The Dutch maker of medical equipment is winning back shareholder and consumer trust after paying less than expected to settle claims linked to faulty sleep apnea devices. Demand for its medical imaging and monitoring devices in North America is helping drive the recovery, which Chief Executive Officer Roy Jakobs said is continuing into the third quarter.

Last month, Philips’ two biggest investors Exor NV and Artisan Partners GP LLC raised their stakes in the company, demonstrating improved confidence in the company.

The rise in new orders was partly offset by a decline in China, the company said. “We expect an improving China in the second half,” Jakobs said in an interview with Bloomberg Television after the results. 

Philips was impacted by a sweeping anti-graft campaign across China’s health-care sector last summer, in line with Beijing’s increasing focus on local and state-oriented procurement in medical technologies. Authorities across the country included strict domestic product requirements for many categories of device. 

The Chinese “government’s anti-corruption measures continued to impact short-term hospital order lead times,” the company said. 

Second-quarter adjusted earnings before interest, taxes and amortization rose to €495 million ($538 million), beating the average estimate of €426.3 million in a Bloomberg survey of analysts. The results included €538 million of insurance income related to liability claims over its costly sleep apnea recall, boosting the company’s income from operations to €816 million in the quarter. 

The company began recalling some sleep apnea products due to health concerns linked to the disintegrating noise-dampening foam over two years ago, with the US Food and Drug Administration labeling the fault a Class 1 issue, the most serious type.

The recall cost the company around $5 billion, according to Bloomberg calculations. Philips is still being investigated by the US Department of Justice over the issue and has not yet made any financial provisions for that matter. 

--With assistance from Lizzy Burden.

(Updates with shares in second paragraph)

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