Q4 2024 Summary
Published Feb 13, 2025, 4:34 PM UTC- GE HealthCare is achieving significant margin expansion despite challenging market conditions, and management is confident in continuing this trend with higher-margin products launching in future years. ,
- Strong and consistent orders growth across all segments has led to a record backlog and high book-to-bill ratio, positioning the company well for future revenue growth. ,
- Upcoming product launches, such as Flyrcado, and investments in innovation indicate management's confidence and are expected to drive future growth. ,
- Declining free cash flow due to inventory buildup: The company experienced a reduction in free cash flow in 2024, primarily driven by strategic inventory buildup and opportunities to optimize inventory management. This indicates potential inefficiencies that could impact financial performance.
- Expected sales decline in China impacting revenue growth: GE HealthCare anticipates a decline in China sales in the first half of 2025, leading to a projected low single-digit decline for the year in that market. This could negatively affect overall revenue growth, given the significance of the China market.
- Headwinds from tariffs, foreign exchange, and inflation affecting margins: The company faces new tariffs on products from China, expected to impact adjusted EBIT margin by approximately 10 basis points. Additionally, foreign exchange headwinds of about 1.5% to revenue and ongoing inflationary pressures could hinder margin expansion. ,
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Adjusted EPS Guidance | FY 2024 | no prior guidance | Raised the low end by $0.05; now expecting a range of $4.25 to $4.35 per share, reflecting 8% to 11% YoY growth | no prior guidance |
Free Cash Flow | FY 2024 | no prior guidance | Approximately $1.8 billion | no prior guidance |
Organic Revenue Growth | FY 2025 | no prior guidance | 1% to 2% for Q1 2025 with stronger growth expected later; excluding China: 2.5% to 3.5% | no prior guidance |
Adjusted EBIT Margin | FY 2025 | no prior guidance | 16.7% to 16.8%, with a YoY expansion of 40 to 50 basis points; Q1 2025: approximately flat YoY | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | $4.61 to $4.75 with 3% to 6% YoY growth; Q1 2025: approximately flat YoY | no prior guidance |
Free Cash Flow | FY 2025 | no prior guidance | At least $1.75 billion | no prior guidance |
Foreign Exchange Impact | FY 2025 | no prior guidance | Expected to be a 1.5% headwind to revenue | no prior guidance |
China Revenue | FY 2025 | no prior guidance | Anticipated low single-digit revenue decline due to market volatility | no prior guidance |
Adjusted Effective Tax Rate | FY 2025 | no prior guidance | 22% to 23% | no prior guidance |
Flyrcado Product Launch | FY 2025 | no prior guidance | Revenue contribution of approximately $30 million for 2025 | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Adjusted EPS | FY 2024 | $4.25 – $4.35 | $4.37 (sum of Q1 0.82, Q2 0.94, Q3 1.03, Q4 1.58) | Beat |
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Margin Outlook
Q: How did margins outperform, and what's the midterm outlook?
A: Management reported a record operating margin of 18.7% in Q4, which was 260 basis points higher than last year. This improvement was driven by 150 basis points from gross margin expansion and declines in SG&A due to optimization efforts. Volume, mix, and price contributed approximately 150 basis points to EBIT margin expansion. They remain confident in achieving their midterm goal of 20%+ margins, noting that the strong Q4 performance increases their confidence in exceeding that target. -
China Sales Impact
Q: What's the outlook for China sales and orders?
A: In China, GEHC saw orders growth in Q4 but anticipates negative growth in the first half of 2025 and sequential improvement in the second half. Overall, they expect a low single-digit revenue decline in China for the year. Despite recent volatility, management views China as an attractive long-term market and says the situation is on track with their prior expectations. -
2025 Guidance
Q: Why is organic growth guidance excluding China at 2.5%-3.5%?
A: Although they achieved a 6% orders growth and a book-to-bill ratio of 1.16 in Q4 , many of these orders will deliver in the second half of the year or next year. Therefore, the 2025 organic growth guidance excludes immediate impact from these orders. They are assuming about $30 million in revenue from Flyrcado in 2025. -
Q1 Margin Expectations
Q: What drives flat margins in Q1?
A: Management expects gross margin improvement in Q1 but will invest in R&D and SG&A to support new product launches like Flyrcado. This investment offsets gross margin gains, resulting in flat operating margins for the quarter. They emphasize the importance of investing for future growth. -
Flyrcado Launch
Q: What are the expectations for Flyrcado in 2025?
A: Flyrcado is expected to generate approximately $30 million in revenue in 2025. Launch preparations are on track, including sales force expansion, reimbursement processes, and manufacturing scale-up through contract manufacturing organizations. The company believes Flyrcado is a $0.5 billion opportunity in the long term. -
Capital Equipment Market
Q: How is the capital equipment market outlook?
A: Management sees a robust capital environment in the U.S., driven by strong procedure growth and the need for updated equipment. Europe is expected to improve after a challenging year. They are not seeing signs of hospitals reducing CapEx despite financial pressures. -
Free Cash Flow Decline
Q: Why was free cash flow down in 2024, and what's expected in 2025?
A: The decline in free cash flow was due to an inventory build-up in the latter part of the year. Some inventory was strategic; some requires optimization. Management expects to normalize inventory levels in 2025, improving cash flow through better inventory turns and operational working capital management . -
AVS Business Growth
Q: What's driving growth in the AVS segment?
A: The AVS segment saw strong performance due to new ultrasound platforms and the success of the Allia IGS Pulse in interventional labs. Growth in surgery centers and outpatient procedures is boosting demand for products like the OEC C-arm. These trends are expected to continue into 2025. -
Competitive Landscape
Q: How is GEHC positioned competitively?
A: While competition varies by region and product, GEHC is confident in its performance, especially in the U.S.. They continue to innovate with new product launches in CT and molecular imaging, aiming to capture new markets and upgrade their installed base . -
Sutter Health Deal and M&A
Q: What is the impact of the Sutter Health deal, and are there more M&A plans?
A: The $1 billion, 7-year deal with Sutter Health is not expected to deliver revenue uniformly each year; installations will depend on factors like site readiness. GEHC sees similar opportunities with other health systems. They plan to be more active in tuck-in M&A in 2025 and 2026, focusing on strategic fits that enhance their capabilities.