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    GEHC
    Earnings call· Mar 2025(Q1 FY25)

    GE HealthCare Technologies Inc. GEHC

    Apr 30, 2025 Source

    Executive summary

    GE HealthCare Q1 FY25 — Strong Orders and Revenue Growth Offset by Tariff Headwinds

    GE HealthCare delivered strong Q1 FY25 results with robust orders and broad-based organic revenue growth across all segments, driven by strong U.S. demand and a growing backlog. However, full-year guidance for adjusted EPS, EBIT margin, and free cash flow was significantly lowered to reflect an estimated $0.85 per share impact from tariffs, despite ongoing mitigation efforts and unchanged sales estimates. Management remains focused on operational execution and innovation pipeline delivery amidst a dynamic global trade environment.

    Highlights

    5

    • Record double-digit organic orders growth of 10% year-over-year, driven by strength in the U.S. market.

    • Organic revenue growth of 4% year-over-year, with growth across each segment and high single-digit growth in the U.S.

    • Adjusted EBIT margin expanded 30 basis points year-over-year to 15%, driven by volume and productivity.

    • Adjusted EPS of $1.01, up 12% year-over-year, exceeding expectations.

    • Record backlog of $20.6 billion, up $1.9 billion year-over-year, with a strong book-to-bill of 1.09x.

    Concerns

    4

    • Full-year 2025 adjusted EPS guidance lowered to $3.90-$4.10 from $4.61-$4.75, reflecting an estimated $0.85 per share total tariff impact.

    • Full-year 2025 adjusted EBIT margin guidance lowered to 14.2%-14.4% from 16.7%-16.8% due to an estimated $475 million negative tariff impact.

    • Full-year 2025 free cash flow guidance lowered to at least $1.2 billion from at least $1.75 billion, primarily due to tariff payments.

    • Patient Care Solutions EBIT margin declined 450 basis points year-over-year due to investments, tariff impact, and product mix.

    Guidance & targets

    9
    CategoryTargetConfidence
    Full-year 2025 Organic Revenue Growth
    2% to 3%
    high materiality
    High
    Full-year 2025 China Sales Performance
    Low single-digit decline
    medium materiality
    Medium
    Full-year 2025 FX Impact on Revenue
    Neutral
    medium materiality
    High
    Full-year 2025 Adjusted EBIT Margin
    14.2% to 14.4%
    high materiality
    High
    Full-year 2025 Adjusted Effective Tax Rate
    21% to 22%
    medium materiality
    High
    Full-year 2025 Adjusted EPS
    $3.90 to $4.10
    high materiality
    High
    Full-year 2025 Free Cash Flow
    At least $1.2 billion
    high materiality
    High
    Q2 2025 Organic Revenue Growth
    1% to 2%
    medium materiality
    High
    Q2 2025 Adjusted EPS
    High single-digit decline year-over-year
    medium materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Imaging
    Driven by strong execution in the U.S. and robust demand in the U.S. and EMEA markets. Continued investment in R&D for new products.
    ProductivityVolumePrice
    		—5%—up 130 bps YoY
    Advanced Visualization Solutions
    Strong performance in the U.S. Product roadmap focused on accelerating recurring revenue with demand for digital and AI across ultrasound and IGT portfolios.
    VolumeProductivity
    		—3%—up 10 bps YoY
    Patient Care Solutions
    Growth driven by improved backlog execution and monitoring solutions in the U.S. Team focused on new product launches with higher gross margin, factory automation, and supplier consolidations to improve margin over time. Investing in digital, consumables, and services for increasing recurring revenue.
    InvestmentsTariff impactProduct mix
    		—2%—declined 450 bps YoY
    Pharmaceutical Diagnostics
    Robust quarter globally. Delivered first commercial doses of Flyrcado and saw continued growth of Vizamyl. Completed acquisition of remaining 50% stake in Nihon Medi-Physics.
    R&D pipelineNPIs
    		—8%—above 32%

    Operational metrics

    15
    Adjusted Gross Margin Expansion
    80YoY
    Q1 FY25

    Driven by increased volume and benefiting from higher margin new products, along with productivity initiatives.

    R&D Investment as % of Sales
    7up 6% YoY
    Q1 FY25

    Reflects commitment to advancing innovation initiatives and growing product leadership positions.

    Past Due Backlog Reduction
    $25M
    Q1 FY25

    Achieved by the imaging team implementing a new lean management system, increasing customer satisfaction and improving cash flow.

    Inorganic Revenue Contribution from Nihon Medi-Physics
    $150M
    Remaining 3 quarters of 2025

    Expected contribution from the acquisition of the remaining 50% stake in Nihon Medi-Physics.

    Debt Repaid
    $250M
    Q1 FY25

    Part of capital allocation priorities to strengthen the capital structure.

    Share Repurchase Program Authorization
    $1B
    Ongoing

    Authorized by the Board of Directors, demonstrating commitment to returning cash to shareholders.

    Gross Tariff Impact
    $1.75
    FY25

    Estimated gross impact of tariffs prior to mitigation actions.

    Net Incremental Tariff Impact on Adjusted EPS
    $0.80
    FY25

    Expected net incremental impact after mitigation actions to date, in addition to the $0.05 reflected in February guidance.

    Tariff Impact on Adjusted EBIT
    $475M
    FY25

    Estimated negative impact from incremental tariffs announced since February guidance.

    Tariff Impact Cadence Q1 2025
    around $10M
    Q1 FY25

    Very small impact from tariffs in the first quarter.

    Tariff Impact Cadence Q2 2025
    less than $100M
    Q2 FY25

    Expected impact in the second quarter.

    Tariff Impact Cadence Q3/Q4 2025
    around $200M
    Q3/Q4 FY25

    Expected impact in the third and fourth quarters, related to timing of higher cost inventory running through P&L.

    Tariff Impact on Adjusted EPS (2026 Outlook)
    less than $0.85
    FY26

    Expected impact from tariffs in 2026 under the current tariff structure, due to supply chain optimization actions.

    Flyrcado Revenue Target
    $30M
    FY25

    Targeted revenue for Flyrcado in 2025, with launch on track.

    Flyrcado CMO Sites
    north of a dozenwill double by year-end
    Current

    Expanding contract manufacturing organization (CMO) throughout the U.S. to support Flyrcado rollout.

    Industry KPIs

    8
    MetricValueDetails
    Tariff impact$0.85per share
    Pricing realized pricePositive price
    New product launch rampFlyrcado
    Procedure volume growthRobust demand
    FCF conversion leverage guidanceFCF: at least $1.2B; Adjusted EPS: $3.90-$4.10; Organic Growth: 2%-3%USD
    Segment franchise organic growthImaging: 5%; Advanced Visualization Solutions: 3%; Patient Care Solutions: 2%; Pharmaceutical Diagnostics: 8%%
    Consumables recurring revenue mixAccelerating recurring revenue
    Pivotal trial clinical evidence milestonesPhoton Counting CT submission

    Product announcements

    2
    ProductTypeDetails
    Flyrcadolaunch
    Revolution Vibelaunch

    Deals & partnerships

    3
    Sutter HealthFirst orders booked

    Booked the first orders from Sutter Health, strengthening relationship with top IDNs.

    St. Luke's University Health NetworkAgreement to drive further growth

    Recently announced agreement to strengthen relationship and drive further growth.

    Nihon Medi-PhysicsAcquisition of remaining 50% stake

    Completed the acquisition of the remaining 50% stake in Nihon Medi-Physics.

    Risks & headwinds

    4
    Tariff impact on profit and cashFY25, with more significant impact in H2 2025

    Estimated $0.85 per share net incremental impact on adjusted EPS for FY25; $475 million negative impact on adjusted EBIT for FY25; $550 million reduction in FY25 free cash flow guidance.

    Mitigation: Swift mitigation actions taken to offset over 50% of gross exposure, including duty drawback, USMCA compliance, bonded logistics routes. Future plans include local-for-local manufacturing, dual sourcing, and multi-sourcing suppliers for 2026.

    Patient Care Solutions EBIT margin declineQ1 FY25

    Declined 450 bps YoY in Q1 FY25.

    Mitigation: Investing in new product launches with higher gross margin, driving factory automation, and supplier consolidations to improve margin over time. Continued investment in PCS portfolio for increasing recurring revenue.

    China market sales declineFY25

    Expected mid-single-digit decline in H1 2025, leading to a low single-digit decline for the full year.

    Mitigation: Maintaining a measured approach, operating as a local player with significant local product sourcing, and leveraging relationships with indigenous market players and JVs.

    Global trade environment volatilityOngoing

    Uncertainty regarding the continuation and levels of bilateral U.S. and China tariffs, and U.S. reciprocal tariffs on Rest of World.

    Mitigation: Conservatively assuming current elevated tariff levels continue. Aggressively pursuing local-for-local manufacturing, dual supply scenarios, and optimizing overall configuration constructs. Carefully managing discretionary expenses while protecting long-term innovation investments.

    What to watch in Q2 FY25

    5

    Tariff Impact Cadence

    Q2 FY25
    CurrentQ1 FY25 impact: around $10M
    TargetQ2 FY25 impact: less than $100M

    Why it matters

    Verifying the expected acceleration of tariff impact🌐 in Q2 is crucial for assessing the accuracy of full-year guidance and the effectiveness of initial mitigation efforts.

    In the first quarter, we had a very small impact from tariffs, maybe around $10 million. But as we move into the second quarter and the third and fourth quarter, the impact is more dramatic. In the second quarter of this year, we expect less than $100 million of impact, a little bit less than $100 million.

    Q&A highlights

    6

    How will the $0.85 tariff impact be lower in 2026, and what is the cadence of the impact in 2025?

    Management explained that 2025 mitigation efforts are more straightforward (duty drawback, USMCA), while 2026 will involve more complex actions like local-for-local manufacturing, dual sourcing, and multi-sourcing suppliers. The tariff impact in 2025 is minimal in Q1 ($10M), less than $100M in Q2, and around $200M in Q3/Q4, primarily due to the timing of higher-cost inventory liquidation.

    “As we look at 2026, there are a number of incremental moves that we would make. And remember, our company coming out of COVID, we did a lot of work on sourcing and making our products where they're consumed, and we did a lot of work on dual sourcing. We would continue and accelerate some of that.”

    asked by Larry Biegelsen · answered by James Saccaro

    2 min read6 chapters

    Detailed Narrative

    01

    Tariff Impact and Mitigation Strategy

    The company estimates a gross tariff impact🌐 of approximately $1.75 per share, with a net incremental impact of $0.80 per share for 2025, totaling $0.85 per share when combined with prior guidance. This significant impact, predominantly from bilateral U.S. and China tariffs ($375 million or $0.65 per share), led to a reduction in full-year adjusted EBIT margin, EPS, and free cash flow guidance. Mitigation efforts for 2025 include duty drawback, USMCA compliance, and bonded logistics routes. For 2026, the company plans more extensive actions such as local-for-local manufacturing, dual sourcing, and multi-sourcing suppliers, aiming for a lower tariff impact🌐 than 2025.

    02

    Strong Market Demand and Backlog Growth

    GE HealthCare reported robust market demand, particularly in the U.S., driving record double-digit organic orders growth of 10% year-over-year. This strength was observed across imaging products, with a focus on cardiology and oncology. The book-to-bill ratio was strong at 1.09x, and the company exited the quarter with a record backlog of $20.6 billion, an increase of $1.9 billion year-over-year. Management noted that customer budgets remain constructive, with no significant cancellations or deferrals observed.

    03

    Innovation Pipeline and New Product Introductions

    The company is actively advancing its innovation pipeline, with key products expected to drive future growth. In Q1, GE HealthCare commercially launched Flyrcado, a first-of-its-kind PET myocardial perfusion imaging agent for coronary artery disease, which received CMS pass-through pricing. Additionally, the dedicated cardiac CT system, Revolution Vibe, was introduced, focusing on cardiac tests. The pipeline also includes Radiopharmaceuticals, Total Body PET, Photon Counting CT (with submission planned for later this year), and next-generation Interventional Vascular Lab.

    04

    China Market Dynamics and Strategy

    Management maintains a cautious outlook for the China market, expecting a mid-single-digit decline in the first half of 2025, with Q2 anticipated to be particularly challenging due to tough comparisons. A sequential improvement is projected for the second half, leading to a low single-digit decline for the full year. The company's strategy in China emphasizes operating as a local player, with significant local product sourcing and partnerships, to navigate the evolving market and value-based procurement landscape.

    05

    Capital Allocation and Shareholder Returns

    GE HealthCare's capital allocation priorities remain focused on investing in organic growth and pursuing strategic tuck-in M&A opportunities that align with its portfolio strategy and aim to accelerate growth. In the first quarter of 2025, the company repaid $250 million of debt. Furthermore, the Board of Directors authorized a new $1 billion share repurchase program, demonstrating a continued commitment to returning cash to shareholders.

    06

    Operational Efficiency and R&D Investment Balance

    The company continues to drive operational efficiency through productivity initiatives, such as implementing a lean management system in imaging, which reduced past-due backlog by over $25 million. Despite cost control measures, R&D investment remained robust at 7% of sales, increasing 6% year-over-year, underscoring the commitment to advancing innovation and product leadership. Strategic investments in commercial capabilities, including the launch of Flyrcado, are also being protected.

    AI-generated summary of the company’s earnings call. Not investment advice.