Halfway into its first year as a standalone company, Chicago-based GE HealthCare Technologies’ sales are growing as demand for its products rebounds after the COVID-19 pandemic, but expenses are slowing margin growth.
GE HealthCare revenue grew 7% in the second quarter to $4.82 billion, compared with analysts’ estimate of $4.81 billion, according to Bloomberg. But inflation and interest expenses pushed net income down 14% to $418 million, or 91 cents a share, according to the company’s earnings report today. That exceeded Bloomberg analysts’ estimate of 83 cents a share on a generally accepted accounting principles, or GAAP, basis.
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GE HealthCare’s stock was down about 2.1% Tuesday morning, trading at about $79.
Even still, with growing demand and improving stock markets, GE HealthCare raised its full-year guidance, now projecting organic revenue, which excludes the impact of foreign currency, to grow 6% to 8%, rather than the previously issued guidance range of 5% to 7%.
The company also now projects adjusted earnings per share in the range of $3.70 to $3.85, compared to the prior range of $3.60 to $3.75.
“We have confidence in our ability to deliver on the full year,” CEO Peter Arduini told investors this morning.
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Arduini said second-quarter sales growth was driven by increased demand for its products, which include imaging machines, ultrasound equipment, patient monitoring products and diagnostic agents. Orders were up 6% on an organic basis in the second quarter as healthcare provider finances continued to recover from the pandemic, more patients sought surgical procedures and supply chain issues eased.
GE HealthCare’s imaging segment — its largest division — saw sales rise 7% to $2.6 billion in the second quarter, follow by the ultrasound segment, which grew 1% to $839 million.
GE HealthCare was spun off by longtime parent General Electric at the beginning of the year and started its independent life with a heavy debt load of $10.25 billion and about $5 billion in pension liabilities, according to a December Securities & Exchange Commission filing.
Those obligations, combined with other expenses, hindered cash flow in the second quarter, which was down $58 million year over year, according to the earnings release. The company’s net income margin was 8.7% in the second quarter, compared to 10.8% for the prior year.
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“There’s still a lot of standup costs as a public, independent company . . . and that is eating into some of their margin,” said Ryan Zimmerman, managing director of medical technology equity research at BTIG. “It’s going to take time. We’re not going to see a big margin lift this year necessarily.”
After being spun off, GE HealthCare immediately set ambitious growth targets, betting on independence allowing it to focus on growing its product lines and investing in research and development. It also wants to expand, mainly through acquisitions.
The company also is focusing on expanding its artificial intelligence capabilities, incorporating the technology into several of its products.
This story first appeared in Crain’s Chicago Business.
