GE Healthcare trades higher despite top line miss
GE HealthCare’s Q2 results showed a mixed performance with EPS exceeding expectations, but revenue falling short. The company reported adjusted EPS of $1.00, above the consensus estimate of $0.98 and an improvement from $0.92 in the prior year. However, total quarterly revenue of $4.84 billion was slightly below the analysts' average estimate of $4.87 billion, representing a modest 0.5% year-over-year increase. This revenue miss, along with the lowered organic sales growth forecast, contributed to a 4% premarket drop in shares.
The company adjusted its full-year guidance, now anticipating organic revenue growth of 1% to 2%, down from the previous estimate of around 4%. Adjusted EBIT margin is forecasted to be between 15.7% and 16%, slightly higher than the prior range of 15.6% to 15.9%. Despite these adjustments, GE HealthCare maintained its adjusted EPS guidance of $4.20 to $4.35, aligning with the current estimate of $4.27.
Revenues were relatively flat year-over-year with a 1% increase on an organic basis, driven by positive price and volume dynamics. The net income margin improved slightly to 8.9% from 8.7% the previous year, while the adjusted EBIT margin saw a more substantial increase to 15.3% from 14.8%, reflecting benefits from productivity and pricing actions. The company's total orders increased by 3% organically, resulting in a solid book-to-bill ratio of 1.06 times.

Despite achieving a higher adjusted EBIT of $742 million, up 4.4% year-over-year and slightly above the estimate of $740.2 million, GE HealthCare faced challenges in free cash flow. Operating cash flow was negative $119 million, compared to negative $67 million in the previous year, and free cash flow was negative $182 million, down from negative $136 million. These declines were partly due to increased investment in productivity and growth initiatives.
Looking ahead, GE HealthCare expects to navigate through the headwinds posed by the China market, which significantly influenced the lowered revenue guidance. However, the company remains optimistic about its overall growth trajectory, with expectations of a 7% to 11% growth in adjusted EPS for the full year. CEO Larry Culp highlighted the company’s ongoing efforts to improve productivity, enhance pricing strategies, and expand its market presence, which are expected to drive long-term value creation.