On January 29th, General Electric announced it’s fourth-quarter 2019 financial results which provide some insight into the performance of its healthcare and medical systems business. The results show that overall sales revenue from the healthcare business was flat year-on-year during the fourth quarter. The sales revenue reached $5.4 billion, compared with $5.39 billion in Q4 2018, an increase of +0.1% year-on-year. This result was expected and in-line with the forward-looking statements made by the GE management team at its Healthcare Investor Day amidst RSNA 2019. This resulted in full-year cumulative sales revenue of $19.9 billion, compared with $19.8 billion in 2018, an increase of +0.8% year-on-year.
The high-level reporting on GE’s healthcare business is segmented into two core divisions, life sciences and healthcare systems, which accounted for 27% and 73% of revenues respectively during 2019. The overall revenue growth of +0.8% was driven by higher revenues from the life sciences segment, which was partially offset by lower revenues from healthcare systems.
Healthcare Systems Segment
The full-year cumulative sales revenue from healthcare systems reached $14.6 billion, compared with $14.9 billion in 2018, a decrease of approximately -1.7% year-on-year. The 2019 full-year figure is an analyst estimate based on the Q4 2019 earnings results until GE reports at a sub-segment level during its annual report due at the end of February. The healthcare systems segment encompasses a broad suite of products and solutions used in the diagnosis, treatment and monitoring of patients. Its primary activity is the development, manufacturing, marketing and servicing of a broad portfolio of medical imaging solutions. This includes magnetic resonance (MRI), computed tomography (CT), molecular imaging (MI), x-ray and ultrasound imaging systems. Sales revenue originates from both the sale of hardware and software as well as complimentary services. The healthcare systems segment also encompasses Enterprise Software & Solutions (ESS) which includes enterprise digital, consulting and healthcare technology management as well as Life Care Solutions (LCS).
Q4 2019 revenues and orders:
- Revenues were reported to be approximately -1% lower year-on-year.
- Orders were +1% higher year-on-year driven by higher orders from life care solutions, ultrasound equipment and services. These growth areas were partially offset by lower orders from the imaging segment, predominately due to the market dynamics in China. Imaging orders from the U.S. and Canada were higher year-on-year and reflected stable demand.
Q3 2019 revenues and orders:
- Revenues were reported to be approximately +2% higher year-on-year. Growth was driven by Japan and Latin America, partially offset by China and the Middle East. The weakness in sales activity for imaging equipment within China was driven more by the private sector rather than the public sector.
- Orders were flat year-on-year, organically, with the higher volume being offset by pricing pressures. Orders were driven by growth in life care solutions, ultrasound and services, offset by imaging, largely due to China market dynamics and longer sales cycles on larger deals in the U.S.
Q2 2019 revenues and orders:
- Revenues were reported to be marginally higher year-on-year, driven by higher volume, with strength in Europe offset by China and North America, and Life Sciences was up. During the Q2 earnings call, Larry Culp CEO commented, “we certainly saw bits of the business that didn’t perform at the top line in the way that we would have liked. I think Healthcare revenues were a little soft in the U.S. and in China”.
- Orders were reported to be -2% lower year-on-year and flat organically, driven by growth in ultrasound and services offset by imaging and life care solutions largely due to U.S. order closure timing.
Q1 2019 revenues and orders:
- Revenues were reported to be approximately -4% year-on-year, driven in part by pricing pressures as well as adverse effects of a strong U.S. dollar.
- Orders were up 5% organically. This was driven by Imaging growth up 7% due to strong growth in premium and performance CT and new product introductions in MR, including our AIR coil technology as well as Life Care Solutions up 6% due to continued momentum on solutions-oriented deals.
The growth outlook for Healthcare Systems
During the Q4 earnings call, Larry Culp CEO commented, “we see an opportunity to drive faster Healthcare Systems growth post the BioPharma sale” … “we expect low to mid-single-digit growth going forward” and that “growth will continue to be driven by innovative solutions and our digital capabilities, resulting in products such as the Revolution Maxima CT scanner, which we launched at RSNA (2019)”. Larry’s comment suggests additional sales revenue from healthcare systems of between $150m to $750m during 2020 based on the 2019 full-year figures. That said, given the contraction in revenues during 2019, the healthcare systems business would need to grow by approximately 2% in order to reach the prior revenue levels it achieved during 2018. Larry also commented on the positive impact from the recent leadership changes which include the appointment of Yihao in China and Everett in the United States. Larry commented, “I’m really optimistic that the commercial execution that has caused us to underperform on a relative basis in ’19 is on its way to being remedied, and we should see improvement as we go through the course of the year (2020)”.
Life Sciences Segment
The full-year cumulative sales revenue from life sciences reached $5.5 billion, compared with $4.9 billion in 2018, an increase of approximately +8% year-on-year. The 2019 full-year figure is an analyst estimate based on the Q4 2019 earnings results until GE reports at a sub-segment level during its annual report due at the end of February. The life sciences segment encompasses GE’s portfolio of products, services and manufacturing solutions for the pharmaceutical and biopharma industries.
Cumulative profit reached $3.9 billion, compared with $3.7 billion in 2018, an increase of approximately $0.2 billion or 5.4% year-on-year. This represented a profit margin increase of 80bps from 18.7% to 19.5%. The increase in profitability was predominantly driven by volume growth and cost productivity due to cost reduction actions, sourcing and logistics initiatives as well as design engineering and restructuring actions. These increases were partially offset by inflation, the impact of U.S.-China tariffs, and investments in programs including digital product innovations and healthcare systems new product introductions. Surprisingly, the US-China trade tensions and their impact on the GE business was not a talking point during the Q4 earnings call. Earlier in the year, Jamie Miller CFO commented, “the impact in the second quarter was $90 million net, and really no change. I think we’ve said $400 million to $500 million of net impact for this year, and that’s about what we still see, mostly in Healthcare and Renewables”.
During the Q4 earnings call, GE provided little information regarding the current impact of the Coronavirus on GE Healthcare. Larry commented, “with respect to corona — the coronavirus, obviously we’re disheartened and sorry that it’s happening. It’s a tragedy in its own right. Our priority is on safety clearly of our team really across GE. As you might imagine, our Healthcare team is really in the smack in the middle of this in Wuhan and elsewhere, servicing our equipment, certainly prioritizing new equipment deliveries, particularly to the Wuhan hospitals. We made a significant donation of patient monitors and ultrasound equipment to help the care providers there. So there’s a lot going on. And fortunately, we can be part of the solution there in China, but itself, a real tragedy.”
The pending sale of the BioPharma business
In February 2019, GE Healthcare announced an agreement to sell its BioPharma business to Danaher Corporation for a total consideration of approximately $21.4 billion. The company expects the sale to be completed during Q1 2020.
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