GE CEO Vows Company Will Retain Healthcare Business, Explains How And Why

By Jof Enriquez,
Follow me on Twitter @jofenriq

GE is holding onto its healthcare unit despite speculation that the conglomerate is looking to divest its healthcare business to focus on heavy industry products, such as jet engines and gas turbines. On the contrary, the company is planning to expand its healthcare business through organic growth.

Last year, GE sold its home loan portfolio business and healthcare financial services unit as part of a restructuring strategy, which has led to recent speculation that the healthcare business is the next asset up for sale.

According to Bloomberg, Deane Dray, an analyst at RBC Capital Markets LLC, said in an investors note that, "It is within the realm of possibility that Healthcare, or part of the segment, could eventually be divested. The premise is that the diagnostics and life-sciences businesses have enough critical mass to stand as an independent entity and could arguably be declared as noncore to GE’s portfolio migration."

However, John Flannery, CEO of GE Healthcare, quashed speculation about such a move.

"It’s a fundamentally attractive industry with growth and we have a very strong competitive position. We are certain this business grows faster inside of GE than it would grow outside," he told investors recently, reports Bloomberg.

GE Healthcare reported 2015 sales of $17.6 billion, accounting for 16 percent of GE's total revenues. Flannery said the unit's operating margin is projected to grow more than 18 percent in 2018, from 16.3 percent last year, which will be achieved mainly by tripling cost-cutting measures and launching less-expensive products. He cited GE’s ultrasound business as an example of where these steps will be applied.

In addition, the unit is expecting at least 10 percent growth this year for its life science portfolio, which includes chromatography, imaging, and cell-therapy tools.

"Frankly, we didn't grow margin because we didn't drive cost down" in recent years, said Flannery, according to Reuters.

Aside of cost-cutting, more revenue could theoretically be driven through selling some assets within the healthcare unit, particularly its X-ray business, but Flannery is not interested.

"We're keeping the X-ray business, period," he reportedly said. "It's intrinsically connected to the portfolio because more than 40 percent of bids the company makes to supply equipment require an X-ray component."

He's not too keen on making acquisitions, either, because he thinks most M&A targets are currently inflated.

"We don't feel the need to do a major acquisition or divestiture and I don't want the business distracted from growing earnings," said Flannery, according to Reuters. "We have five years plus of not growing earnings. We're not going to be a party to that anymore."

GE Healthcare is moving from the United Kingdom to Chicago to be closer to its key manufacturing centers in Wisconsin and Northern Illinois, and to consolidate its operating presence in the United States, which remains its biggest market for digital imaging, information technology, and life sciences.