By Maarten van Tartwijk 

AMSTERDAM--Royal NV Philips is again caught in the crosshairs of U.S. authorities.

The Dutch health-technology company said Tuesday it is in talks with the U.S. Department of Justice following inspections of its defibrillator business by the Food and Drug Administration before and during 2015. The outcome of the talks could have a "meaningful impact on the operations of this business" and hurt group earnings this year, it said.

The FDA in 2013 warned that thousands of defibrillators made by Philips may not deliver the needed shock during medical emergencies due to an electrical component failure that could mistakenly indicate that the device was ready to be used. These so-called automated external defibrillators are used to restore patients' heartbeats after cardiac arrest and are used by consumers and first responders working at fire departments.

Chief Executive Frans van Houten said the discussions with the Justice Department aren't related to product quality but to manufacturing procedures. He declined to give further detail on the talks but said the defibrillator business is relatively small, accounting for roughly EUR200 million ($215.07 million) in annual sales. The U.S. represents only part of that figure, suggesting the impact of a potential fine or plant shutdown could be relatively limited.

Still, Philips shares fell by around 4% in Amsterdam even as it reported better-than-expected fourth-quarter earnings.

The investigation comes as Philips is aiming to resolve a yearslong brawl with the FDA over a factory in Cleveland that makes diagnostic imaging tools. Production at the facility was temporarily halted in 2014 after the FDA detected shortcomings in manufacturing controls, causing Philips to issue multiple profit warnings.

"[The Justice Department investigation] throws doubt into Philips' ability to run FDA compliant factories in the U.S." ING analyst Nigel van Putten said. "As the investigation is ongoing, uncertainty is expected to linger," he said.

The issue adds to wider concerns of Philips' operations in the U.S., its most important market by sales. The promise of President Donald Trump to undo the Affordable Care Act is generating uncertainties in the health-care industry. General Electric Co., one of Philips' major rivals, last week warned that uncertainties could slow sales of medical equipment such as MRI and X-ray machines.

Mr. van Houten said the U.S. business continues to perform well but that the industry has a lot of questions about the future under the new President. "I have spoken with several hospital CEOs...Everybody is trying to understand what 'repeal and replace' could mean. Nobody knows what could happen," he said.

Philips, the maker of products ranging from X-ray machines to electric toothbrushes, said Tuesday it returned to net profit in the fourth quarter as it reported a pickup in sales and benefited from cost-savings. Net profit was EUR640 million ($688 million) in the last three months of 2016, up from a EUR39 million net loss in the same period a year earlier, beating market expectations.

Adjusted earnings before interest, taxes and amortization were EUR1 billion, up from EUR842 million in the previous year. Sales were EUR7.24 billion, up 3% on a comparable basis.

The Dutch company, which is in the process of exiting its lighting business, also presented new financial targets for the next three to four years despite voicing concerns about its markets. Its new goal is to achieve 4% to 6% comparable sales growth, while growing adjusted Ebita by 100 basis points annually.

Write to Maarten van Tartwijk at maarten.vantartwijk@wsj.com

 

(END) Dow Jones Newswires

January 24, 2017 05:14 ET (10:14 GMT)

Copyright (c) 2017 Dow Jones & Company, Inc.
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