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Dismal 2Q17 Results Drag General Electric into Murky Waters

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Part 5
Dismal 2Q17 Results Drag General Electric into Murky Waters PART 5 OF 10

What Led the Rise in GE’s Healthcare Revenue in 2Q17?

Healthcare segment

General Electric’s (GE) Healthcare segment remained a top performer in 2Q17. Revenue-wise, this segment remained the third-largest contributor to GE’s total operating revenue of $28.0 billion. The segment’s revenue was $4.7 billion, a rise of 4%, in 2Q17. While its healthcare systems revenue rose 5%, its life sciences revenue rose 8% organically.

The segment’s operating income rose 6% to $826.0 million YoY (year-over-year) in 2Q17. There was also a slight expansion of 0.3% in the segment’s (PFE) operating margin to 17.6% in 2Q17.

What Led the Rise in GE&#8217;s Healthcare Revenue in 2Q17?

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Healthcare segment’s 2Q17 orders

General Electric witnessed 3% order growth to $5.0 billion in the Healthcare (MRK) segment in 2Q17. The organic growth mainly came from emerging markets, which saw an 11% rise in orders. 

Orders in the United States and Europe rose 1% and 2%, respectively. In emerging markets, orders in the Association of Southeast Asian Nations rose 25%, whereas Latin American orders rose 5%. Orders in the Middle East fell 6% organically in the quarter.

Let’s look at product-based orders. Healthcare Systems orders rose 3% due to a rise of 8% in ultrasound orders. Imaging products orders rose 4%, with particular strength in mammography and CT (computerized tomography) orders. However, orders in life care solutions were unchanged. The much-discussed healthcare (IYH) reforms in the United States negatively affected orders there.

Management outlook

Investors should take note of the buzz surrounding The Affordable Care Act. GE expects some uncertainty to continue in the United States, but it expects stability in Europe. 

GE has invested heavily in the Healthcare (JNJ) segment in 2Q17. With 300 cost-out engineers, the company hopes for ~5% organic growth in Healthcare’s revenue in 2017.

GE announced a ten-year collaboration with Partners Healthcare to develop Artificial Intelligence medical platforms and solutions. The company also signed an agreement with Humber River Hospital in Canada for the installation of a digital command center. The company will use predictive analytics there to focus on better clinical, operational, and financial results. In 2Q17, GE inked a deal to install India’s first ever FlexFactory to expand biologics production in Hyderabad, India.

Stay tuned for a discussion on GE’s transportation segment in 2Q17.

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