Philips Says The Turnaround Is Real And The Market Believes It – Moby
Philips delivered the kind of quarter that shifts the conversation from remediation to momentum. Orders rose, sales accelerated, margins expanded, and cash flow landed with confidence. The Respironics overhang still matters, but investors are increasingly treating Philips as a functioning medtech operator with improving fundamentals and a clearer runway.
Philips reported 2025 group sales of €17.8 billion (about $22 million) with comparable sales growth of 2%, then ended the year with a fourth quarter that showed a clearer step up, with comparable sales growth of 7% on €5.1 billion of revenue. Comparable order intake grew 6% for the full year and 7% in the quarter, which matters because orders are often the cleanest signal of future hospital spending.
Profitability improved materially. Adjusted EBITA margin rose 80 basis points to 12.3% in 2025 and jumped 160 basis points to 15.1% in the fourth quarter. Income from operations was €1,424 million for the year and €540 million for the quarter.
Cash generation was the headline that likely mattered most to markets. Operating cash flow was €1,172 million in 2025 and €1,391 million in the fourth quarter. Free cash flow was €512 million for the year and €1,200 million in the quarter. Philips also closed out its three-year productivity programme, delivering €0.8 billion of savings in 2025 and €2.5 billion across 2023 to 2025.
For 2026, Philips guided to comparable sales growth of 3% to 4.5%, an adjusted EBITA margin of 12.5% to 13.0%, and free cash flow of €1.3 billion to €1.5 billion. At its Capital Markets Day it set 2026 to 2028 targets including mid single digit comparable sales growth, a mid teens adjusted EBITA margin by 2028, and cumulative free cash flow of €4.5 billion to €5.0 billion.
One caveat remains central. 2025 free cash flow included a €1,025 million payment tied to Respironics recall-related medical monitoring and personal injury settlements in the US.
Philips is trying to graduate from a turnaround story to durable compounder, and this update makes that transition easier to underwrite. The company has spent years rebuilding trust after the sleep apnea recall, a saga that has not only cost money but also distorted how investors think about the business. When a company is defined by legal provisions and compliance headlines, operational improvements rarely get full credit.
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The fourth quarter helped change that framing. A combination of stronger growth, expanding margins, and a large free cash flow number suggests Philips has regained operating rhythm. In medtech, rhythm is the product. Hospitals buy carefully, refresh cycles are long, and installed base relationships matter. If Philips can keep orders rising while expanding margins, it starts to look like the kind of boring quality name investors want to hold through macro noise.
Tariffs were the stress test embedded in the print. Management said incremental tariffs weighed on performance, yet margins still expanded sharply in the quarter. That implies productivity and mix improvement are doing real work, not just flattering the numbers. It also hints that Philips has rebuilt supply chain resilience and pricing discipline after years when it was forced to prioritize remediation over optimisation.
The segment picture supports the broader story. Connected Care improved profitability meaningfully in the quarter, and Personal Health posted strong growth, driven by operating leverage and productivity, resulting in a sharp margin jump. Diagnosis and Treatment grew as well, though tariffs still dragged on margin, a reminder that the quality of the recovery varies across the portfolio.
The medium-term targets do a different kind of work. The mid-teens margin by 2028 is a strong statement because it suggests Philips believes compliance and quality investments are now baked into the system rather than spiraling. It is also leaning into a platform narrative, arguing that innovation sits at the intersection of hardware, software, data and AI. In a sector where imaging and monitoring are becoming more software-defined, that is the right direction of travel.
None of this makes the Respironics risks disappear. Philips explicitly excluded ongoing proceedings from its outlook, including the US Department of Justice investigation. That is corporate language for more uncertainty could arrive. But the market is reacting to a simpler fact. Philips is generating cash while paying down the past.
The near-term test is whether Philips can convert strong order intake into sustained revenue growth through 2026 while keeping margins moving higher under tariff pressure. Investors will look for evidence that the fourth quarter was not a one-off snapback and that the step up in growth is durable.
Attention will also stay on how quickly free cash flow normalizes now that large recall-related payments are flowing through, and whether management can keep building resilience without slowing innovation. If Philips can keep delivering steady growth with improving profitability, the story changes from recovery to rerating. If legal or macro shocks resurface, the market will quickly remind Philips that trust is earned quarter by quarter.
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