Q2 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Strong orders growth and backlog despite China headwinds: GE HealthCare delivered 3% orders growth globally, or 6% excluding China, with a book-to-bill ratio of 1.06x, the highest since the spin-off, demonstrating strong demand and market share gains, particularly in the U.S.
- Positive impact from CMS reimbursement changes on Pharmaceutical Diagnostics (PDx) business: The recent CMS proposed rule change is expected to unlock value in radiopharmaceuticals, benefiting products like Vizamyl, and potentially accelerating growth in the PDx segment.
- Maintained earnings guidance and margin expansion despite revenue headwinds: Despite lowering revenue guidance due to China's temporary market headwinds, GE HealthCare is maintaining its EPS guidance and raising adjusted EBIT margin guidance, reflecting successful productivity initiatives and cost optimization efforts.
- Continued revenue decline and uncertainty in China market: GE HealthCare lowered its full-year organic revenue growth guidance, citing significant headwinds in China with first-half sales declining 15% and expecting a high-teens decline in the second half. The timing of China's stimulus impact remains uncertain, adding risk to future growth , ,.
- Reduction in revenue guidance by $500 million raises concerns about growth challenges: Despite maintaining EPS guidance through cost-cutting measures, the $500 million cut in revenue guidance indicates potential difficulties in achieving growth targets, which may not be sustainable long-term ,.
- Competitive threats from emerging diagnostics in Alzheimer's disease: The potential introduction of blood-based tests for Alzheimer's could reduce demand for GE HealthCare's PET imaging agents like Vizamyl, posing a risk to growth in their Pharmaceutical Diagnostics segment ,.
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China Stimulus Delay
Q: How will China stimulus delay affect orders and 2025 outlook?
A: The stimulus program rollout in China is taking longer than expected and is now anticipated to impact orders starting in late 2024. GE HealthCare has removed the expected stimulus benefits from this year's guidance, acknowledging a $500 million impact in China relative to previous expectations. They expect the stimulus to positively affect 2025 results and are prepared to capitalize on it when it occurs. -
Maintaining Margins Despite Revenue Decline
Q: How did you maintain margins and EPS despite lowering revenue guidance?
A: Despite lowering revenues by about $500 million, GE HealthCare maintained margins and EPS through cost initiatives, lean culture, and productivity improvements. They delivered 60 basis points of margin expansion in the first half and expect continued margin improvement due to pricing, cost containment, and productivity initiatives. Below-the-line assumptions remain unchanged. -
Medium-Term Growth Confidence
Q: Are you still confident in medium-term growth targets for 2025?
A: Management remains confident in their medium-term goals for both revenue and profit growth. While uncertain about the exact contribution from China in 2025, they believe it could be more than previously expected. The confidence is based on core company changes, commercial execution, and new product introductions. -
Strong U.S. Market and Orders
Q: How is the U.S. market performing, and what is your order visibility?
A: The U.S. market is robust, with orders excluding China up 6% and a book-to-bill ratio of 1.06x, the highest since the spin-off. Order growth outpaced sales growth in all segments in the U.S., and backlog increased by $300 million to $19 billion. GE HealthCare expects this strong performance to continue into 2025. -
Positive Impact of Medicare Changes on PDx
Q: How do Medicare changes affect your PDx business outlook?
A: The CMS ruling is favorable, unlocking better reimbursement for radiopharmaceutical diagnostics. Products like Vizamyl are experiencing significant growth, with U.S. volumes tripling. The ruling could accelerate growth in products like Vizamyl and Flurpiridaz next year. Management is more optimistic about the long-term opportunity in molecular imaging. -
New Product Momentum
Q: What new products are driving growth, and how will they impact market share?
A: GE HealthCare has launched multiple new products across its portfolio, including value MR products, updates in Ultrasound, vascular lab equipment, surgical C-arms, and monitoring systems. These products are performing well and are expected to contribute to incremental market share gains in the back half and medium term. More details will be shared at the Investor Day in November. -
China Market Long-Term Potential
Q: How do you view China's medium-term growth given recent challenges?
A: Despite current challenges, management views China as a good long-term market. The installed base in higher-tier hospitals is older, providing opportunities for refresh. Additionally, with only about 400 million of China's 1.4 billion population having good access to healthcare, expansion into untapped markets offers growth potential. -
EPS Guidance and Assumptions
Q: Were there any changes to below-the-line assumptions affecting EPS?
A: There were no major changes to below-the-line assumptions like tax expense or other income. The EPS range remains wide due to uncertainty in China, but management feels confident about delivering within this range. -
Q4 Revenue Confidence
Q: How confident are you in delivering Q4 revenue expectations?
A: GE HealthCare has a high level of confidence based on strong backlog and secured equipment orders. Approximately 75% of equipment revenue comes from backlog, with the remaining 25% sold and installed in the quarter. They expect a normal step-up from Q3 to Q4 supported by the backlog and robust U.S. market performance. -
Incremental Share Gains
Q: What is driving incremental share gains in the back half?
A: The launch of new products and upgrades across business lines, such as MR, Ultrasound, and Interventional equipment, is driving share gains. The company is seeing positive orders and expects ultrasound revenues to pick up in the second half. They anticipate continued share gains due to these innovations.