GE Healthcare Technologies Inc (NASDAQ:GEHC) reported that hospital customers in China are postponing new orders for imaging equipment due to the slower-than-expected implementation of a financial stimulus program from the central government.
The delay in the stimulus plan means hospitals are not receiving funds to cover orders, leading to a hold on new purchases, GE Healthcare executives said during a Wednesday earnings call.
China accounted for around 14% of GE Healthcare’s business in 2023. However, this year, the country’s contribution is expected to drop to 11%-12%. Consequently, the company lowered its total revenue growth outlook for the year, predicting weak China sales in the second half of 2024 due to reduced demand for imaging and ultrasound systems.
Despite these challenges, GE Healthcare reported a 3% year-over-year increase in total organic orders in the second quarter. Excluding China, revenue growth was 4%, and orders rose by 6%, driven by strength in the United States and other global markets.
GE HealthCare (NASDAQ:GEHC) president and CEO Peter Arduini said, “In the second quarter, we delivered year-over-year sales growth and margin expansion despite headwinds in the China market. We also reported solid orders growth with particular strength in the US, as healthcare systems invest in technologies that enhance patient care and improve productivity. We are pleased with our continued progress in advancing our margin goals, while continuing our investments for future growth.”
Arduini noted that GE Healthcare is gaining market share across all segments.
Results included:
- Revenues were flat year-over-year; organic revenue growth* was 1%.
- Net income margin was 8.9% versus 8.7% for the prior year;
- Adjusted earnings before interest and taxes (EBIT) margin* was 15.3% versus 14.8%.
- Diluted earnings per share (EPS) were $0.93 versus $0.91 for the prior year; adjusted EPS* was $1.00 versus $0.92.
- Cash flow from operating activities was -$119 million versus -$67 million for the prior year; free cash flow* was -$182 million versus -$136 million.
Company updates full-year guidance for organic revenue growth* and Adjusted EBIT margin*
Several cost reduction initiatives, including improvements in manufacturing processes and products, supported net income, and the company maintained its earnings per share forecast for the full year.
China market dynamics
Orders in China are expected to recover later in the year, with the stimulus program anticipated to boost orders in 2025.
The impact of China’s market dynamics is affecting the medtech sector this earnings season. Philips, which also reported flat quarterly sales on Monday, indicated that the country’s ongoing anti-corruption campaign was extending hospitals’ approval cycles. In July, Johnson & Johnson (NYSE:JNJ) cited a volume-based procurement effort aimed at containing costs as a factor restraining demand.
Similar to GE Healthcare, Philips and Johnson & Johnson (NYSE:JNJ) executives view pressures from China as largely short-term. Philips expects the stimulus package to eventually accelerate medical equipment purchases, pointing to an underlying need for replacement devices and pent-up demand.
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