GE HealthCare Technologies Inc. (GEHC) Earnings

Management highlights

- Overall Q2 2026 Performance: Total company revenue hit $5.3 billion, with 3.5% organic year-over-year growth in line with expectations. Organic orders grew 11.1% year-over-year (the highest rate since the company's spin), with a 1.15 book-to-bill ratio. Ending backlog reached a record $23.9 billion, growing $2.6 billion year-over-year and $2.1 billion sequentially. Adjusted EBIT was $750 million (14.2% margin), and adjusted EPS was $1.13, up 6.6% year-over-year. Free cash flow was $68 million for the quarter. - Strategic Initiatives: The D3 precision care strategy integrates smart devices, drugs, disease-state focus, and AI-enabled digital capabilities, while the Heartbeat operating system aligns cross-functional teams to deliver innovative products faster and improve portfolio margins over time. Organizational changes completed in Q2 combined former imaging units into the AIS segment and realigned global commercial teams to increase customer focus and organizational agility. The company continues to use internal AI tools to improve internal productivity, simplify workflows, and strengthen supply chain operations. - Innovation Pipeline: Multiple new AI-enabled products have launched, with strong customer traction. Photonova Spectra (photon counting CT) is launched in the U.S. with CE marking for Europe expected in H2 2026, growing the qualified sales funnel ahead of full commercial launch. New deep learning software upgrades like True Definition DL for existing CT systems are offered via subscription, generating recurring revenue while expanding installed base value. Visamel (amyloid PET imaging agent) delivered double-digit revenue growth, aligned with rising Alzheimer's therapy adoption. Flacato (radiopharmaceutical) production hit 545 weekly doses as of July 2024, a 40% increase from April levels, with strong customer acceptance. Phase 2/3 clinical trials are ongoing for a new non-gadolinium-based contrast agent for MR. - PCS Turnaround and Strategic Review: The PCS segment has ongoing operational improvement initiatives focused on increasing shipment velocity and backlog conversion for monitoring and anesthesia lines to deliver revenue and margin improvement in H2 2026. A comprehensive strategic review is underway to evaluate long-term options to maximize value, including continued ownership, a sale, or other value-enhancing transactions. A healthy pipeline of new PCS products is on track to launch in 2026 and 2027.

Guidance

- Full-year 2026 guidance is maintained: organic sales growth of 3% to 4% year-over-year, and adjusted EBIT margin expansion of 10 to 40 basis points, for a full-year margin range of 15.4% to 15.7%. Adjusted EPS guidance is maintained at its prior range. - Q3 2026 expected year-over-year organic revenue growth is 3% to 4%, with low double-digit adjusted EPS growth year-over-year. - Second half 2026 is expected to outperform the first half, in line with historical seasonality: 52% of full-year revenue and 55% of full-year profit will come in H2, with over 300 basis points of adjusted EBIT margin expansion from H1 to H2, driven by price and cost actions implemented in Q2 and higher-margin new product mix. - The medium-term target of $500 million or more in annual Flacato revenue by 2028 remains fully intact. All original medium-term 2026-2028 company targets (mid-single-digit organic growth, 18% to 20% adjusted EBIT margin, high single-digit to low double-digit EPS growth, 90% free cash flow conversion) remain in place, with management confident the targets are achievable. - Management continues to assume a year-over-year revenue decline in China for full-year 2026, in line with prior planning.

Segment performance

1. Advanced Imaging Solutions (AIS): This is the first quarter of reporting for the combined former imaging and advanced visualization solutions segment. Organic revenue grew 5% year-over-year, driven by strength in cardiovascular and interventional solutions, CT, and molecular imaging. Segment EBIT margin increased 90 basis points year-over-year, with volume and price gains partially offset by inflationary costs. AIS contributes approximately 51% of total company revenue based on combined results. 2. Pharmaceutical Diagnostics (PDX): Delivered 14.6% year-over-year organic revenue growth, with strong volume and pricing performance in contrast media and robust growth in the U.S. radiopharmaceutical business, driven by increased adoption of disease-specific tracers across the portfolio. Segment EBIT margin reached 29.6%, up 30 basis points year-over-year, with volume and price benefits partially offset by planned investments in new product development and clinical trials. PDX contributes approximately 25% of total company revenue. 3. Patient Care Solutions (PCS): Organic revenue declined 13.5% year-over-year, and segment EBIT was negative, driven by operational fulfillment challenges and component supply shortages in the quarter. On a positive note, PCS delivered strong first-half orders growth, led by the monitoring product line and international demand for premium anesthesia devices, with a well-positioned backlog for the second half. PCS contributes approximately 24% of total company revenue.

Risks & headwinds

- Persistent inflationary pressures from memory chips, oil, freight, and other key components continue to create margin headwinds, with a projected $250 million total inflation impact for full-year 2026. - The Patient Care Solutions segment faces ongoing component supply shortages and operational fulfillment challenges that pressured revenue and margins in Q2, with turnaround dependent on successful execution of supply chain improvements. - Generic competition is expected to enter the contrast media market, though management notes market demand is currently tight and near outpacing total supply, reducing near-term impact. - Evolving regulatory and pricing dynamics in China, including expanded volume-based pricing (VBP) programs, create ongoing pressure on regional performance. - U.S. hospital capital budget constraints following ACA subsidy cuts create potential headwinds for capital equipment demand, though management has not observed a pullback to date.

Analyst Q&A

• Q: What drove the strong Q2 orders growth, was it one-time, and what are you seeing for U.S. capital equipment demand after ACA subsidy cuts? /

  A: The 11% orders growth was broad-based across product lines with no large one-time outliers. It came from improved execution, better deal visibility, and a higher win rate driven by the Heartbeat operating system and expanded enterprise account focus, and strength is expected to continue into H2. U.S. procedure demand remains strong, as seen in strong PDX and cath lab performance, and GE HealthCare typically sees increased demand as hospitals turn to its technology to improve productivity during budget challenges. No capital pullback has been observed to date.

• Q: What are the drivers of the expected H2 acceleration embedded in full-year guidance, especially given tougher year-over-year comparables? /

  A: Robust Q2 orders growth sets up strong H2 revenue conversion, and the full-year outlook follows the historical 48/52 first half/second half revenue split. The expected margin expansion of over 300 basis points from H1 to H2 comes from price and cost actions implemented in Q2, higher-margin new product mix, and growing radiopharmaceutical volume, and will be larger than the historical 250 basis point H1-H2 expansion.

• Q: What is driving strong PDX growth, how is the Flacato ramp progressing, and is the 2028 $500 million revenue target still on track? /

  A: Strong PDX growth is broad-based, with contrast media and multiple radiopharmaceutical products (including Visamel for Alzheimer's diagnosis, DatScan for Parkinson's, and Sariana for breast cancer) all delivering solid growth aligned with ongoing industry trends. Flacato's weekly dose volume is up 40% from April, with ongoing customer onboarding expected to drive further H2 growth. The 2028 $500 million annual revenue target remains fully intact, based on the large existing market for perfusion PET studies.

• Q: What is the current trend of inflation impacts on margins, how is the PCS turnaround progressing, and what is the status of the PCS strategic review? /

  A: Inflation pressures are broadly tracking in line with prior expectations: memory chip costs are rising modestly, and oil costs are down from earlier peaks, with the full-year $250 million inflation assumption still appropriate. PCS orders growth is strong, especially for monitoring, driven by a sales organization realignment and new products, but Q2 revenue was pressured by component supply shortages that delayed fulfillment to H2. Management expects sequential top-line and margin improvement in H2 as supply issues are resolved. A strategic review of all options (including retention or sale) is ongoing, and any proceeds from a transaction would follow existing capital allocation priorities: organic investment, tuck-in acquisitions, and returning capital to shareholders.