GE Reports Strong Performance Of Healthcare Unit

By Jof Enriquez,
Follow me on Twitter @jofenriq

General Electric (GE) reported that its Healthcare business performed well in the first quarter of 2016, and expects the unit to continue growing for the rest of 2016.

For the first three months of the year, Healthcare posted 15 percent growth, and had the best organic growth in 20 quarters, according to a Seeking Alpha transcript of the earnings call. Healthcare – along with Power, Aviation, and Renewables – is expected to have substantially better growth this year than in 2015, with organic growth projected at 5 percent during the second half of 2016, and between 2 and 4 percent for the whole year 2016. Operating profit for the first quarter was up 7 percent reported, up 10 percent organically.

Orders in the first quarter for the Healthcare unit amounted to $4.2 billion. Geographically, orders increased 3 percent in the United States, 14 percent in China, 4 percent in Europe, and 2 percent in Asia-Pacific, which helped offset a decrease of 12 percent in Latin America.

Broken down by business lines, Healthcare systems hiked orders 5 percent organically and 2 percent reported, with strength in the U.S. driven by strong CT growth of 26 percent on increased traction on the new Evolution CT launch, and 16 percent growth in the ultrasound business. The life science unit grew 7 percent organically with strength in both bioprocess, up 7 percent, and core imaging, higher by 10 percent, according to the company.

In March, GE Healthcare CEO John Flannery said that tripling cost-cutting measures and launching less-expensive products, particularly ultrasound machines, will help the unit grow margin. He also said GE expects at least 10 percent growth this year for the life science unit, which includes chromatography, imaging, and cell-therapy tools.

"Strong productivity and volume growth offset price and NPI digital spending, and margins improved in the quarter 70 basis points. The business is beginning to deliver on the growth from NPI investments we've made and it's restructuring to deliver lower products and service costs. The business is on track to meet or exceed the framework we shared with you and investors in March," said Jeffrey S. Bornstein, GE CFO, according to the transcript.

There's been speculation that GE is planning to divest its healthcare business, after the company sold its home loan portfolio business and healthcare financial services unit. Company officials have denied this, however, and stronger numbers in the first quarter indicate that the conglomerate will indeed hold onto its healthcare business, which accounted for 16 percent of GE's total revenues in 2015.

GE Healthcare also continues to launch new products, such as its cloud-based radiology services, based on its Predix cloud technology. It also announced recently a move from the United Kingdom to Chicago, to get closer to its largest market (the U.S.) and to its manufacturing centers in northern Illinois and Wisconsin.  

"A transformed GE is well positioned to deliver for shareholders. Today our portfolio is simpler and stronger. We are ahead of the GE Capital exit plan with $166B in deals signed. We are already seeing valuable synergies from the Alstom acquisition. Our investments in GE Digital have positioned us as the leader in the Industrial Internet. We opened Predix in the first quarter and have more than 7,500 developers registered. GE is executing well and is on track to meet its investor goals for 2016," said Jeff Immelt, GE Chairman and CEO, in a press release.