By Maarten van Tartwijk 

AMSTERDAM--Royal NV 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 result in a fine and have a "meaningful impact on the operations of this business," it said.

Defibrillators are used to restore patients' heartbeats after cardiac arrest and are used by consumers and first responders working at fire departments. The FDA in 2013 warned that thousands of the devices made by Philips may not have delivered the required shock during emergencies because of an electrical component failure.

Chief Executive Frans van Houten said the current discussions with the Justice Department are unrelated to the FDA warning in 2013 and primarily focus on quality-management systems and compliance matters. "It is not about product quality or patient safety," he said.

Philips shares nevertheless fell by around 3% in Amsterdam even as it reported better-than-expected fourth-quarter earnings.

It is the second time the Dutch conglomerate has been caught in a brawl with the FDA. In 2014 the agency detected shortcomings in manufacturing controls at a medical-imaging plant in Cleveland. Production was halted for a prolonged period, causing Philips to issue multiple profit warnings.

Mr. van Houten said Philips has worked hard to improve compliance and sought to reassure analysts that the latest investigation will likely be less harmful than the Cleveland problems.

The defibrillator business is relatively small, accounting for roughly EUR290 million ($312 million) in annual sales. The U.S. represents only part of that figure, suggesting the impact of a potential fine could be relatively limited.

The issue, however, adds to wider concerns of Philips' operations in the U.S., its most important market by sales. President Donald Trump's promise 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 remains in the dark about the impact of policy 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, which makes a range of products 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 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, reiterated its financial targets for the next three to four years.

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

 

(END) Dow Jones Newswires

January 24, 2017 08:31 ET (13:31 GMT)

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