Varex Imaging's Q2 2025: Navigating Contradictions in Tariff Impacts, China Sales, and India Localization Strategy

Tariff impact on China sales, India plant development and localization, China business expectations, India plant and localization strategy, and tariff impact and mitigation strategies are the key contradictions discussed in Varex Imaging's latest 2025Q2 earnings call.



Revenue and Segment Growth:
- Varex Imaging Corporation reported revenues of $213 million for the second quarter of fiscal year 2025, above the midpoint of their guidance, with non-GAAP EPS of $0.26.
- Both the Medical and Industrial segments showed year-over-year growth, with Medical revenues at $154 million and Industrial revenues at $59 million, representing 72% and 28% of total revenue, respectively.
- The growth was attributed to strong demand across both segments, led by solid sales of CT tubes and cargo inspection components.

Gross Margin and Productivity Gains:
- The company reported a non-GAAP gross margin of 36%, up from 33% the previous year.
- This improvement was primarily due to increased volume, favorable product sales mix, and productivity gains in both segments.

Impact of Tariffs:
- Varex anticipates a $20 million negative impact on sales from tariffs in the third quarter, primarily affecting high-end CT tubes shipped from the U.S. to China.
- On the cost side, tariffs ranging from 10% to 145% on materials imported into the U.S. are expected to impact gross margins by 150 to 200 basis points.
- The company is pursuing mitigation strategies like localizing manufacturing and shifting supply chains to lower tariff countries.

Cash and Debt Management:
- Varex ended the second quarter with $226 million in cash and cash equivalents, up $36 million from the previous year.
- The company plans to use $125 million of restricted cash to repay $200 million of convertible notes upon maturity in June.
- This repayment is expected to reduce debt and simplify the capital structure.