Philips Q3 2025 Earnings Call: Contradictions on Tariff Impact, China Market Performance, and Innovation-Driven Margins

Date of Call: November 4, 2025

Financials Results

• EPS: EUR 0.36 adjusted diluted EPS, up 13% YOY
• Operating Margin: 12.3% adjusted EBITA/EBITDA margin, up 50 basis points YOY

Guidance:

• Full-year comparable sales growth reiterated at 1% to 3%.
• 2025 adjusted EBITDA margin expected at the upper end of the 11.3%–11.8% range.
• Full-year free cash flow expected between EUR 0.2 billion and EUR 0.4 billion (includes EUR 1.0bn Respironics outflow).
• Net tariff impact for 2025 expected at EUR 150m–EUR 200m after mitigation.
• Q4 expected to show sequential sales improvement with D&T stepping up and continued conversion of orders.

Business Commentary:

• Order Intake and Growth:
• Koninklijke Philips N.V. reported an 8% increase in order intake for Q3 2025, marking the fourth consecutive quarter of improvement.

• The growth was driven by robust demand for their products and disciplined execution, particularly in North America where sustained double-digit order intake growth was observed.

• Sales and Margin Expansion:

• Comparable sales growth stepped up to 3% year-on-year in Q3 2025, with Personal Health contributing significantly.

• The adjusted EBITDA margin expanded by 50 basis points to 12.3%, reflecting solid gross margin delivery and productivity improvements despite tariffs.

• Diagnostic Imaging and Ultrasound Performance:

• Diagnostic Imaging order growth was modestly lower, while Ultrasound orders increased, reflecting robust demand for enhanced products like EPIQ CVx systems.

• The strong performance in Ultrasound was supported by FDA-cleared cardiovascular AI applications in EPIQ and Affiniti systems.

• Connected Care and Margin Improvement:

• Connected Care saw 5% comparable sales growth, driven by strong demand in Monitoring and AI-powered platforms.

• The segment's adjusted EBITDA margin improved by 410 basis points to 11.4%, aided by favorable mix effects and productivity gains.

• Geographic Sales and Tariff Mitigation:

• In North America, hospital demand remained strong, supporting sustained growth and productivity improvements.
• Despite tariffs, the company managed to mitigate their impact, with expectations for a net tariff impact of EUR 150 million to EUR 200 million, aligning with the outlook provided in July.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted 'Order intake grew 8%' and 'Comparable sales growth stepped up sequentially to 3% year-on-year,' reiterated full-year sales guidance of 1%–3% and stated they 'expect our 2025 adjusted EBITDA margin to be at the upper end of 11.3% to 11.8%,' signaling confident execution despite tariffs.

Q&A:

• Question from Julien Dormois (Jefferies LLC): How do you think about price increases going forward given inflation and tariffs? And regarding Personal Health, was Q3 strength influenced by restocking in China and what was China’s contribution?
  Response: Expect some pricing but main margin expansion will come from higher‑margin innovations and productivity; no restocking in China—inventory destocking finished end of Q2 and PH growth was broad-based.

• Question from Edward Ridley-Day (Rothschild & Co Redburn): How should we think about maintaining productivity momentum into 2026 and can you fully offset annualized tariff impact next year?
  Response: Productivity momentum is intact and tariffs were substantially mitigated in 2025 (net EUR150–200m); management is confident but will provide 2026 detail at Capital Markets Day—no firm claim of full tariff offset yet.

• Question from Hugo Solvet (BNP Paribas): Can you expand on order timing in D&T and expected Diagnostic Imaging sales? Also thoughts on Section 232 and reshoring/US manufacturing?
  Response: D&T order timing is lumpy but improving with an expected Q4 step‑up; company is monitoring Section 232, engaging with stakeholders and accelerating localization (EUR150m US investment) to mitigate trade risks.

• Question from Hassan Al-Wakeel (Barclays): How is CT win rate in China faring—are China headwinds market-driven or share losses? And details on the warning letter in ultrasound and informatics and confidence in remediation?
  Response: Traction on CT 5300 and ultrasound; China weakness is mainly market/tender dynamics and longer processing rather than clear share loss; the warning letter is a process issue (not product/patient safety) and is being actively remediated.

• Question from David Adlington (JPMorgan): Reaction to GE's decision to sell the Chinese business—opportunity to pick up share? And what FX hedge roll-off headwind should we expect to margins next year?
  Response: Philips sees competitive opportunities driven by its innovation and platform strategy; FX headwinds are expected into Q4 and are already included in current guidance.

• Question from Graham Doyle (UBS): Given order book, cost savings and mitigation, is it reasonable to expect margins can expand next year with tariffs as they are? And is VBP in China affecting your CT and Ultrasound business?
  Response: Tariffs will annualize and present a headwind for 2026, but management targets continued margin improvement via sales growth, productivity and mitigation; VBP/centralized procurement is impacting China, though some ultrasound/CT traction remains.

• Question from Veronika Dubajova (Citigroup): Was the D&T sales downgrade entirely China-related or are there other regional concerns? Why is IGT low single‑digit and will the warning letter affect CPAP reentry?
  Response: D&T softness mainly reflects China and longer conversion cycles, not broad regional issues; IGT remains market‑leading despite a softer comp; management does not expect the warning letter to impede CPAP market reentry.

• Question from Richard Felton (Goldman Sachs): What drove the strong Connected Care orders and how has the AWS partnership impacted Enterprise Informatics top and bottom line?
  Response: Connected Care orders driven by hospital monitoring demand, standardization and ecosystem partnerships; the AWS collaboration accelerates cloud migration and co‑selling, strengthening the Enterprise Informatics funnel and supporting margins over time.

• Question from Wim Gille (ABN AMRO): Can you give granularity on the sales funnel and order intake for Q4 for D&T and CC? And why has E&I sales been flat despite decent orders and when will orders convert to sales?
  Response: Expect Q4 orders to be positive and more balanced between CC and D&T with a sales step‑up across segments; Enterprise Informatics has long order‑to‑sales conversion cycles so recent order strength will convert over time.

• Question from Falko Friedrichs (Deutsche Bank): How did the Respironics business perform in Q3 as you reenter Europe, and do you plan to significantly reduce adjusting items into 2026?
  Response: Sleep (OSA) sales are improving as markets re‑open while ventilation portfolio reset offsets some momentum; adjusting items remain elevated due to consent‑decree and restructuring costs but management prioritizes and expects a gradual reduction over time.

• Question from Oliver Reinberg (Kepler Cheuvreux): What is the margin impact and timing of SKU reductions (Project Synchronizer) and any sales headwind from pruning? Also confidence that North America growth will continue?
  Response: SKU rationalization is a multi‑year margin tailwind (reducing costs and improving gross margins) with no material sales headwind identified; North America momentum is strong and expected to continue.

Contradiction Point 1

Tariff Impact and Margin Expansion

It involves differing perspectives on the impact of tariffs on margins and the company's ability to offset these costs, which are crucial for financial projections and investor expectations.

Can margins expand next year with current tariffs? Is VBP in CT and Ultrasound segments impacting your business? - Graham Doyle (UBS Investment Bank, Research Division)

2025Q3: Tariffs are a challenge, but we aim to improve margins despite them, focusing on operational execution. - Charlotte Hanneman(CFO)

Will 2026 tariffs effectively annualize current second-half trends? - Graham Doyle (UBS)

2025Q2: We've been considering tariff scenarios since May, which are now incorporated into our '26 planning. We expect a stable margin environment beyond 2025 that includes tariff realities. - Charlotte Hanneman(CFO)

Contradiction Point 2

China Market Performance

It highlights differing interpretations of the company's performance in the China market, which is a significant region for growth and revenue.

What is your current win rate in China, particularly for CT? Is the weaker China order outlook due to market growth or share loss? What factors give you confidence that regulatory actions like the Ultrasound warning letter won’t have broader impacts? - Hassan Al-Wakeel (Barclays Bank PLC, Research Division)

2025Q3: Philips sees traction in China, but market growth remains subdued. In China, tenders are increasing, but processing times are longer. - Roy Jakobs(CEO)

Could you clarify China sales momentum at the group level, particularly Q2 vs. Q1 trends and the outlook for the back half of the year? - Julien Dormois (Jefferies LLC)

2025Q2: China is expected to turn positive in the second half after a negative first half. We remain cautious on China's contribution to full year growth, relying more on other regions for our outlook. - Roy Jakobs(CEO)

Contradiction Point 3

Innovation and Productivity Impact on Margins

It involves differing explanations for the drivers of margin expansion, which are important for understanding the company's financial performance and strategic direction.

How do you view future price increases, given past industry hikes post-inflation crisis? Will we see similar benefits in the next few years? Regarding PH's strong quarter on easy comps: Was there a restocking effect in China? What was China's contribution to this quarter? - Julien Dormois (Jefferies LLC)

2025Q3: Philips is driving margin expansion on the back of gross margin increases from innovations and productivity, not primarily from price increases. - Roy Jakobs(CEO)

Can you quantify how much of the D&T margin improvement was driven by gross margin expansion, and whether this was due to price, mix, or both, and whether you see an inflection point in D&T margins? - Hassan Al-Wakeel (Barclays)

2025Q2: We're pleased with the D&T margin expansion of 130 basis points. The gross margin expansion was driven by innovations and productivity measures, such as product simplification and SKU reduction. - Charlotte Hanneman(CFO)

Contradiction Point 4

Tariff Mitigation and Impact on Sales

It involves the company's strategy to mitigate tariffs and the expected impact on sales, which are critical for financial forecasting and investor expectations.

How can productivity gains be sustained through 2026? Can the tariff headwinds be fully offset next year? - Edward Ridley-Day (Rothschild & Co Redburn)

2025Q3: Philips is focused on 2025, delivering at the higher end of the adjusted EBITDA margin range, reflecting strong operational execution and productivity. For 2026, there will be a detailed discussion at the February 10 Capital Markets Day about maintaining strong execution across various fronts. - Charlotte Hanneman(CFO)

How should we assess the €250M to €300M annual tariff impact on inventory, and was there any pre-purchased inventory? - David Adlington (JPMorgan)

2025Q1: The €250 million to €300 million impact for 2025 is mostly from US-China flows due to high tariffs. Some orders showed end-of-quarter preempting, but sellout momentum, particularly in Personal Health, remains strong. Inventory levels have decreased year-over-year. - Charlotte Hanneman(CFO)

Contradiction Point 5

Sales Growth and Productivity Improvements

It involves the company's expectations for sales growth and productivity improvements, which are crucial for assessing the company's operational performance and future outlook.

What is the order timing outlook for D&T? How will Diagnostic Imaging sales develop going forward? What impact might Section 232 tariffs have on Imaging and Connected Care? - Hugo Solvet (BNP Paribas, Research Division)

2025Q3: The margin expansion continues with productivity and innovation, aligning with the 70-30 strategic focus. Our focus remains on products and solutions that address unmet needs and address customer problems, such as affordable solutions for emerging markets. - Roy Jakobs(CEO)

What are the key drivers for a strong second half? How does the tariff impact affect free cash flow guidance? - Julien Ouaddour (Bank of America)

2025Q1: For 2025, we aim to deliver growth in our Earnings Per Share, adjusted EPS, compared to 2024. This is supported by operational excellence with a focus on productivity improvements, cost savings and accelerated structural cost programs. - Roy Jakobs(CEO)