An independent GE Healthcare will need to boost profits along with revenues. The company hasn’t disclosed full-year 2022 figures yet, but net income fell 19% to $1.4 billion for the nine months ended Sept. 30, 2022, for a profit margin of 10.2%.
A big debt burden and high costs will weigh against GE HealthCare’s efforts to boost profitability and invest in growth. In the spinoff, GE saddled its former subsidiary with $10.25 billion in debt and about $5 billion in pension liabilities, according to a December Securities & Exchange Commission filing. Chief Financial Officer Helmut Zodl told investors in December that the company plans to pay down debt, “specifically in the early years.”
GE HealthCare also intends to cut costs by trimming its product line and real estate holdings. Zodl said the company is targeting more than 100 sites where it could reduce rent and operating expenses.
“This will reduce cost as well as optimize our footprint and supply chain,” he explained.
Asked about the possibility of layoffs in Chicago or elsewhere, the company said it does not “anticipate workforce changes,” but added “we will continue to review our businesses and monitor market conditions to ensure we are positioned for growth and global competitiveness.”
Macro challenges
GE HealthCare also faces macro challenges affecting most medical equipment manufacturers. Over the last several years, the hospital industry has consolidated into a number of large chains with growing leverage to demand price concessions from suppliers like GE HealthCare.
“Any time you have a consolidated buyer group, that gives them great bargaining power,” Aguilar says.
Another source of pricing pressure comes from government and private insurers looking to rein in rising health care costs across the country. National health expenditures more than doubled from 2011 to 2021, according to analysis by the Centers for Medicare & Medicaid Services.
“It’s certainly a big pressure and one that they’ve had to contend with for a while,” Aguilar says. “And you could argue it’s getting worse.”
Montgomery says GE HealthCare keeps health care cost concerns in mind when making new products.
“As we think about designing any device or any software solution, what we’re thinking about is solving for time, cost, quality and access,” he says.
In the end, GE HealthCare’s fortunes as a public company depend on investors’ view of its performance and prospects. Since its debut, GE HealthCare stock was up 28% to $69, or 15.02 times projected 2023 earnings per share, as of Jan. 24. Siemens and Philips traded at $26, or 24.15 times earnings, and $16, or 16.76 times earnings, respectively.
“The argument usually for spinning off is to quote, unquote ‘unlock value,’ ” Aguilar says. “They’ve got a lot of shots on goal . . . so we’ll have to see. The question is open.”
Source link
