GE HealthCare Second Quarter 2026 Earnings Conference Call

of an operating system, we call it heartbeat, to drive rigor around commercial and the operational aspects of what we need to do. And so those two ingredients are going to be the things that unlock this midterm story. And I have to say, those both have been put in place and serve as an incredibly solid foundation.

Yeah, now look, I think, Rick, we feel quite, you know, bullish about where we stand with our midterm targets. Jay hit it. I mean, look, it all starts with, do you have the right demand in the marketplace, which is matched up with the right sales and service teams, but it comes with the right products. We believe we've got the right portfolio coming out, and that portfolio is yet to really deliver the type of results. I just mentioned the Photonova grant that we expect. All of those products have the opportunity for a higher price. There's not been one product that we've introduced that hasn't come out at a higher value than its predicate, and customers are willing to pay for it. Because it has a lot of embedded features that makes them more productive, whether they're AI or just how they're built into it. And we've leveraged this platform approach where we've been able to come up with, I think, better reliability, but also better cost because of the reuse and leverage of different chassis. So the combination of those is faster growth and better gross margin. So there's a big chunk there. Jay hit on heartbeat, which, again, I think you're going to hear more and more about what that does for consistency and better execution. And then this point I made on the prepared remarks about AI inside, we see a significant opportunity to increase our own productivity with the use of AI inside. So that as we grow, we can grow with a lower G&A based on a higher base. And a lot of that is with the use of agents and tools that can help us be more consistent. So we're locked in. We feel very good about our midterm targets. And honestly, this is a great quarter here to demonstrate that we're well-positioned to deliver on it. Thanks to you both.

Thank you. And one moment for our next question. Our next question will come from the line of Travis Steed with B of A Securities. Your line is open. Please go ahead.

Hey, thanks for making the question. and Jay, we'll miss working with you and best of luck in your new role. I wanted to ask about inflation impact on margins, anything you'd kind of call out or quantify this quarter. If you look at the different buckets you gave last quarter, memory, oil and freight costs and other inflation buckets, how those are trending versus three months ago and how you kind of think about the go forward there.

So, yeah, overall from an inflation standpoint, what I would say is we saw a very volatile macro environment to start the year. We had the memory chip phenomena. We had the war in the Middle East impact, logistics and freight, and certain other metals. So last quarter, we had to take an approach to adjust the guidance. What I would say is since then, things are broadly speaking, tracking in line with our expectations. Memory chips have continued to increase, but much more modestly. So we've seen a little bit of increase since the first quarter call, but nothing notable. And oil, while it remains elevated, it is down a bit from the previous peak. And so the $250 million assumption, which included some cushion in it when we put together, when we put it together, is still the appropriate amount for where we sit today. You know, in the second quarter, inflation was about 120 basis point headwind, which was in line with our expectations. And I think for me, the most important aspect is in conjunction with that gross inflation, we put in place a series of mechanisms to offset it, both in terms of cost and price. And we've made really good progress on both of those initiatives, which will support growth into the second half of the year, but then also into 2027.

Great, thank you. And then kind of follow up on the PCS business, the decline this quarter, any more color you'd give on that and when that business starts to stabilize, and then the PCS strategic review, how that's tracking and what you do, you know, with extra cash if you got cash from that strategic review.

Yeah, Travis, thanks for the question. Look, I think, you know, again, the first bright spot on PCS was we saw orders growth, particularly in the monitoring world, that hasn't performed at that level in quite some months. that's heavily tied to, I think, we refocused the sales organization in the quarter that was completed, as well as some of the new products. So, that's a super important point that needs to be out there. But the reality of it is, look, we had operational fulfillment challenges in the quarter. What do those mean? Short on supply of some critical components, things of that nature. Ultimately, that results in our inability to fulfill. Some of those specific orders, Obviously, we'll move out into the second half. We feel good at this point in time with the new focus that the team has in place that we'll be able to fulfill those and correct those. But ultimately, it's about shoring up our supply chain and our ability to deliver consistency and consistently. And so, Jeanette and the team have a daily, weekly focus on this. I'd say we've really got into the details to be able to get the business aligned and feel good about what we can do to be able to address those. As we mentioned as well, I will expect that we will see improvement here within the second half, quarter over quarter, I think both on top line and bottom line. This is a business that is heavily tied to its volume from its profitability standpoint. So as we move velocity, particularly in monitoring anesthesia through those facilities, you'll see the corresponding profit increase. You know, look, on the strategic review, Travis, to your question, you would expect us to be taking a look at this business in many different ways to say, how do we have this be a contributor? Whether it's a contributor for us or someone else, it needs to be addressed. That's job one. And again, I think over the coming quarters, the efforts that we have to improve its profitability, improve its growth profile, feel quite good about the level of actions that we have in place. That being said, you know, we're looking at multiple alternatives here. And so we have many different products that are in this portfolio. Do all of those fit? That's a fundamental question. The constructs of the geography of where we compete with that business, the construct of what our overall SG&A and levels, those are all of the aspects there, obviously to the full extreme of is this business better parked with someone else. So over the coming quarters, it will be about improvement of the business while simultaneously looking at those options. To your point on, you know, if you were to do something, what would you do with the cash? I think it's obviously too early to discuss anything like that at this point. But our capital allocation priorities wouldn't change in either case, right? So we've been very clear about that, Jay and I, in the past that that won't change going forward. You know, our focus on our organic investment is some of the highest returns. We talked about those. You're seeing that play through in our orders growth. We believe that inorganic, the right level of tuck-in deals can make a lot of sense for this business to continue to grow. And then we have other vehicles to distribute cash back, share buyback, and stuff. We've done some in the quarter. Most likely, as in all things, it's not one lever. It's the right combination based on time.

Thank you. And one moment as we move on to our next question. And our next question will come from the line of Robbie Marcus with J.P. Morgan. Your line is open. Please go ahead.

Hi, this is Henry on for Robbie. Thank you for taking the questions. I'll just ask both of them up front. So, first, on the generic OmniPack, could you just talk a little bit about what you're seeing today in terms of the AB-rated approvals, and a little more importantly, what you expect the impact to be in the second half of 26 and 2027? And then, second question, on the EPS guide, the prior guide didn't include a rebate. So today, why did you choose not to raise the EPS guidance given the tariff refund and lower taxes that benefited second quarter relative to the prior expectations.

Thanks. Jay, do you want to take the first one and then maybe I'll take the guide? Sure.

So on Amnil, we haven't seen any impact at this point at all. What I would say is that the current contrast market demand is very close to outpacing total market supply. So it's a very tight market as we sit here today. And then as we forecast the market growing going forward, you know, our expectation is based on increased procedure volumes in places like cath labs, we expect the market to double in size over the next decade. So we're really talking about incredibly robust growth. With this growth, you know, there have been periods of tight supply over the years. So we believe there's room for incremental supply on the market. The other thing I would say is like generic competition is not new in these contrast media markets, and we've successfully navigated through multiple market cycles. And the way we do it, you know, it comes down to being a trusted and consistent supplier. It comes down to having the full portfolio of products available and really being there when your customers need them. So listen, we never underestimate competition at all. We haven't seen an impact to date. We think that this market is going to be a tight one going forward. But then also, we do believe that there are aspects that differentiate our offering relative to others. And then, Pete, maybe on the guidance.

Yeah, I'll take the guidance question. So, your question was, with some of the tariff cash benefit, how come you didn't raise? Look, I think we recognized four cents of adjusted EPS related to the 26 tariffs within P&L. I think others have taken more at a four cents level, this being halfway through the year and multiple cost items tied to oil, chips still somewhat in flux. We just thought it made sense to kind of stay where we're at. Obviously, if those stay at lower levels, will have upside within our guide. I think we have the appropriate cushion here to meet and potentially exceed. And so it just made sense at this point in time to kind of hold where we're at.

Thank you. And one moment as we move on to our next question. Our next question will come from the line of Joanne Winch with Citi. Your line is open. Please go ahead. Good morning. And thank you for taking the question. I want to pause on China and think about what is going on in that region in terms of provincial budgets, VBP, pricing, and anything else you can share geographically? Thank you.

Hey, Joanne, thanks for the question. Yeah, look, there's always evolving dynamics in China. I would just say for us that when we look at China, the changes, the evolution are not new or I would say out of the ordinary of what we're expecting. I mean, we had expected that China over time will continue to expand VBP constructs. We've seen over the past couple of years, we've seen in other industries that way, it makes sense. It aligns to their strategy on anti-corruption because they tend to be more transparent than non-VBDs. So from that standpoint, we haven't seen anything out of the ordinary. We were pleased with our China performance in Q2, which I describe as in line with expectations. And we're making good progress in the most recent quarters. I think under Will's leadership, we've strengthened the portfolio. We've focused on clinical value propositions, as well as we've stood up a provincial government affairs group that's been very helpful in how we think about properly positioning and strategic alignment on these VBPs, which, again, based on the recent headline news, are going to continue to grow. So I think we view it from that standpoint. I also think it's, you know, our view on the dynamics of the region haven't greatly improved at this point, but we feel it's prudent to continue to assume kind of a year-over-year decline in 2026. That's what we've built into our plan, and there hasn't been any change there. Obviously, if that improves, that would be upside. But fundamentally in line with what our current expectations are, And I'd say we're getting better at making the right configuration decisions, getting the right clinical discussions happening to be able to perform at a better level.

Thank you so much. And best of luck, Jay.

Thank you.

Thank you. One moment for our next question. Our next question will be from the line of Vic Chopra with BMO. Your line is open. Please go ahead.

Oh, hey. And thanks for taking the questions. Jay, thanks for all your help over the years. It was a pleasure working with you. So maybe the first question, you know, you've ordered, you highlighted strong orders and growth and initiatives to ship, to improve shipping velocity and backlog conversion in PCS. I'm just wondering what level of margin recovery you expect from fixing these challenges alone, and how much would PCS have grown if you didn't have these supply chain issues in the second quarter?

Yeah, I'm not going to get into hypotheticals to kind of lay that out, but I would say if you looked at our historical performance when we had minimal challenges, we would expect to be back to that level. That's how I would frame it up. And again, much of that is specifically tied to velocity. We have a fixed cost structure without that velocity going through it. It has a disproportionate effect on profit. So once we get velocity back, I think you can look to previous year rates. And that's what we'd expect to be getting back to.

Okay, got it. And, you know, you've referenced this new product cycle, you know, the back half of 26 and into 2027 with new products across all modalities, call it over the next six to 18 months. I'm just curious, Pete, which two or three NPIs do you view as the highest margin and the highest share gain opportunities? Thank you.

Vic, it's tough to choose between all of your children which ones you like the most. But, look, I think the team has done a very good job of many of them having big contributions. Now, obviously, there are certain segments that disproportionately are bigger use models within a hospital. So our MR growth will have a disproportionate benefit from a profit and growth standpoint as we roll new products out. Our photon counting system, Photonova Spectral, will fall in the same way. And ultrasound across the board, because, you know, what Phil and team have been able to do is leverage that platform approach across all of them. But I would say things such as, like, our vascular labs are very interesting. And that's a combination of we haven't traditionally performed as well there. We've had other competitors from outside the United States that have done better. and I think as we've talked about, we think we actually have probably the best system out there today that will come in multiple configurations. For us, that opens up competitive account doors that we haven't been able to compete in. So that's a, you know, that would be how I would frame that up. But, you know, again, even in our mammography platform, we're doing quite well because now we have a very competitive image quality and performance capabilities, our core x-ray platform again this has been just a maniacal focus to make sure that we're in a number one or number two position with all of our products and that they're greatly enhanced with artificial intelligence tools that change the productivity paradigm for customers and that's what we're seeing so early days yet but we were quite good about the receptivity at this point Thank you.

In one moment. Our last question is going to come from the line of Matt Taylor with Jeffries. Your line is open. Please go ahead.

Thanks for taking the question. Hey, Jay. Good luck in your next role. It's been great working with you for 20 years almost. Thanks, Matt. Thanks. Thanks, Jay. So, I just wanted to ask more about the outlook for costs. You talked about the levels versus your prior guide for this year. Could you talk a little bit about next year and how you're planning for the potential for increases in memory costs and, you know, oil's in flux? But, you know, if oil goes higher, how would you be able to hedge against that with some of the mitigation actions and the pricing that you've implemented?

Yeah, it's Pete. Look, I think the short answer is we have to be able to get adequate price to be able to offset those types of changes in the marketplace. All of our new products, we've been heavily focused on on the cost side. And so there will be a natural lift in gross margins based on all of that. But in particular, the price aspects. And if you recall, we talked about raising prices and taking price actions in the first half. we will see more of an uplift of price here in the second half, and then obviously that will continue into the beginning of 2027. So I don't know, Jay, if you want to add anything else to it.

Yeah, the only thing I would add, Matt, is if you look at the story in the quarter really related to a PCS challenge driving down overall margin for the company, despite very, very high inflation in the quarter, some of the highest that we've seen in years in a specific quarter, we still expanded margin, excluding PCS, by I think around 100 basis points. So a really remarkable story. You can expect to see more of that as we go into the future. And with the PCS business stabilizing, that too serves as a catalyst. So I think the playbook that we put in place this year, notably cost management and price to offset inflation. While there is a lag, and we saw that in the second quarter, the lag does benefit Q3, Q4, and all the way into next year.

Okay, great. Thank you, guys.

Thanks, Matt.

Thank you. This concludes the question and answer session, and I will hand the call back to Peter for his closing remarks.

Thanks, Operator, and thanks, everyone, for your interest in G Healthcare. care. We look forward to connecting with many of you here in upcoming discussions or some of our investor events in the near term. Thank you.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.