Getinge Earnings: Small Steps Mark the Beginning of Expected Recovery
Getinge’s GETI B second-quarter results were hurt by ongoing regulatory and quality issues in the acute care therapies segment, but on the whole, quarterly revenue shortfalls weren’t as bad as we’d been expecting, while the impact on profitability was greater than we’d estimated. As a result, we’re leaving our fair value estimate unchanged after moderating the anticipated decline in acute care revenue for the full year, which was offset by steeper-than-expected margin declines. Despite all the near-term disruption, we see little that threatens Getinge’s narrow economic moat, which really stems from the switching costs associated with the sterilization business.
Getinge’s focus on fixing the underlying issues in acute care seems to be producing a few green shoots, though we continue to think it will take time to fully comply with regulatory requirements, even if the firm is already making progress on resolving quality and packaging solutions. One ray of near-term hope came in the form of Germany’s exemption that allows Getinge to continue selling its consumables for its extracorporeal membrane oxygenation systems without European regulatory approval. Further, regulatory approval for its aortic balloon pumps was reinstated this month, which should help the firm stabilize acute care heading into 2024.
We were most surprised by the 14% quarterly decline in the life sciences business, compared with the prior-year period. This was driven by lower demand for washer disinfectors among life science customers and the hospital end market. We surmise customers might be prioritizing other types of capital spending, and we expect replacement of this equipment to normalize in hospitals as surgical volume has returned. We are more concerned about the softness driven by the Chinese market, which was a major factor in quarterly order declines in washer disinfectors and bioreactors. If China struggles to return to growth, Getinge could feel the effects.
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