GE Healthcare's stock spikes up at the open as profit beat outweighs sales miss

By Tomi Kilgore

Profit outlook kept intact despite sales growth guidance lowered, as China headwinds are 'temporary'

Shares of GE Healthcare Technologies Inc. turned higher Wednesday, after the medical technologies and diagnostics company reported second-quarter profit that beat expectations and maintained its full-year guidance, to offset a disappointing revenue performance and outlook.

The company blamed its revenue miss, and lowered full-year growth guidance to continued weakness in China, but stressed that those challenges are "temporary."

The stock (GEHC) had tumbled as much as 9.9% in the premarket session after results were released, but then spiked up into positive territory as the opening bell rang.

It climbed 4.1% in recent morning trading toward a fifth-straight gain, and a three-month high.

Net income rose to $428 million, or 93 cents a share, from $418 million, or 91 cents a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $1.00 beat the FactSet consensus of 98 cents.

Revenue grew 0.5% to $4.84 billion, but that was just below the FactSet consensus of $4.88 billion.

Among the company's business segments, imaging revenue was down 1% to $2.60 billion to miss the FactSet consensus of $2.66 billion, ultrasound revenue dipped 2% to $823 million, or below expectations of $844.7 million and patient care revenue was flat at $772 million, just below expectations of $773.2 million.

Meanwhile, pharmaceutical diagnostics revenue jumped 12% to $639 million, well above expectations of $591.8 million.

While sales growth in China remained negative, Chief Executive Peter Arduini said on the post-earnings call with analysts that the company saw "particular strength" in the U.S., given replacement cycles, the increased use of imaging across disease states for diagnostics and the resilience of the ultrasound market.

Free cash flow for the quarter was negative $182 million, compared with negative $136 million from a year ago, and positive free cash flow of $274 million in the first quarter.

Arduini noted, according to a FactSet transcript, that it was previously expected that sales growth in China would turn positive in the second half of the year, after being negative in the first half. But because of the "prolonged timing" of the rollout of China's economic stimulus measures, sales there are expected to continue to fall in the second half.

As a result, the company lowered its guidance range for 2024 organic revenue growth, which excludes acquisitions and foreign currency translation, to 1% to 2% from approximately 4%, due to China market headwinds.

"It's important to note that despite this revenue reduction, we are maintaining our EPS guidance for the year," Arduini said. "Although we're disappointed with the second half reduction in sales growth, this is a temporary challenge, and we expect to see China market orders recovery later in the year."

The company still expects full-year adjusted EPS of $4.20 to $4.35. The outlook for free cash flow was also kept intact, at approximately $1.8 billion.

The stock has rallied 11.3% year to date, while the Health Care Select Sector SPDR ETF (XLV) has gained 10.3% and the S&P 500 index has advanced 15.9%.

-Tomi Kilgore

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07-31-24 1038ET

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