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Will Healthcare Revenue Growth Sustain GE's Q1 Earnings?

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General Electric Company (GE - Free Report) is scheduled to report first-quarter 2018 results on Apr 20, before the opening bell. The company’s Healthcare segment is likely to report higher revenues and strong margins, owing to improved market dynamics and growth in medical diagnostics market.

Impressive Q4 Performance

In fourth-quarter 2017, GE Healthcare’s revenues had jumped 6% year over year to $5,402 million, with orders improving 6% to $5.1 billion, driven by Healthcare Systems and Life Sciences businesses. Stable U.S. and European markets as well as strong growth in emerging markets boosted revenues. Renewables onshore contributed to growth despite significant price pressure in the industry.

Orders for the segment increased 8% in the developed markets and 12% in emerging markets driven by strength in China. On a product basis, healthcare system orders were bolstered by higher demand for ultrasound and imaging products along with decent performance in mammography and CT. Order for life sciences products were driven by bioprocess and core imaging.

Operating profit was up 13% to $1,159 million, driven by volume and productivity gains. However, the same was partially offset by price and program investments. Operating margin expanded 130 basis points (bps) to 21.5%.

Accounting for 18.6% of total revenues in fourth-quarter 2017, Healthcare forms an integral part of GE as CEO John Flannery intends to focus on three core segments — Power, Aviation and Healthcare. He aims to gradually exit all other businesses to plug the downtrend in the company’s shares.

In fact, earlier this month, GE inked an agreement to sell a trio of its health-care information technology businesses to private equity firm Veritas Capital for $1.05 billion in cash. The transaction includes GE’s Enterprise Financial Management, Ambulatory Care Management and Workforce Management software assets. This divestiture seems appropriate as the conglomerate has struggled to gain a dominant foothold in a crammed market for health-care workforce management and billing software, of late.

The Zacks Consensus Estimate for Healthcare revenues in first-quarter 2018 is currently pegged at $4,439 million, up from $4,291 million reported in the year-ago quarter. Operating profit for the segment is estimated at $686 million, up from $643 million reported in the prior year.

Overall Q1 Expectations

The Zacks Consensus Estimate for the Industrial segment profit in the to-be-reported quarter is currently pegged at $2,660 million, reflecting a decline of 26.6% from the year-ago quarter’s figure of $3,622 million. Total revenues for the industrial segment are likely to be down sequentially to $26,425 million from $32,214 million in fourth-quarter 2017.

The industrial goods manufacturer is likely to report lower industrial segment profit in the quarter owing to higher operating costs. GE’s first-quarter 2018 earnings are likely to be hit by high overall expenses with the Zacks Consensus Estimate pegged at 11 cents. (Read more: Weak Power & Transportation Margins to Hurt GE's Q1 Earnings)

Moving Forward

Flannery has termed 2018 as a ‘reset year’ and is contemplating to spin off its operations to maximize shareholder returns. In addition, GE aims to reduce overhead costs by $2 billion in 2018, majority of which is likely to come from the power segment that sells electrical generation equipment. The company intends to sell assets worth $20 billion to improve liquidity.

Amid such drastic portfolio restructuring initiatives, management decided to continue with its inclination for the Healthcare segment, which is one of the three core segments.

Other stocks from the industry that are likely to report first-quarter 2018 earnings include 3M Company (MMM - Free Report) , Honeywell International Inc. (HON - Free Report) and United Technologies Corporation .

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