Here's our initial take on GE HealthCare's (GEHC 2.72%) first-quarter financial report.
| Metric | Q1 FY24 | Q1 FY25 | Change | vs. Expectations |
|---|---|---|---|---|
| Revenue | $4.65 billion | $4.78 billion | +3% | Beat |
| Earnings per share | $0.81 | $1.23 | +52% | Beat |
| Net income margin | 8% | 11.8% | +380 bps | n/a |
| Free cash flow | $274 million | $98 million | -64% | n/a |
GE HealthCare's business won't blow the doors off with big revenue growth. Sales in its first quarter were up 3%, with every segment of its business growing at least 2%. But what the company is doing very well is generating higher margins to boost profitability. Adjusted EBIT (earnings before interest and taxes) was 15%, up from 14.7% on higher volume and improved productivity. EBIT margin improved in all but one of its business segments, helping drive profit margin from 8% in the year-ago quarter to 11.8% to start fiscal 2025.
One of the key factors behind this was the company's continued expense discipline, with operating expenses increasing 1.5%, half the rate of revenue growth. This resulted in 16% higher operating income. Combining this with a few other beneficial financial items on the income statement, earnings per share climbed 52% to $1.23 per share.
On an adjusted basis -- which GE HealthCare used to show the benefit of some nonrecurring items -- earnings per share increased a more modest but still impressive 12% to $1.01 per share.
The company also reported strong orders, up 10% on an organic basis, laying a solid foundation for GE HealthCare to hit its expected targets for sales in coming quarters.
If there was one concerning part of the company's report, it was the gorilla in everyone's room right now: tariffs. Management held firm on full-year expectations for 2% to 3% revenue growth but significantly lowered guidance for adjusted EBIT margin, earnings per share, and free cash flow. Management estimates that the impact of tariffs for the full year would cut free cash flow from its prior estimate of $1.75 billion to $1.2 billion. That compares to $1.6 billion last year. All of its profitability metrics are expected to deteriorate to lower than 2024 levels if tariffs remain in place at current levels.
As of this writing, investors seem to be taking the company's guidance warning as a worst-case scenario rather than the likely one. Shares were up 5.7% in premarket trading on the company's strong results, improving profitability metrics, growing order book. Investors might expect that the ongoing trade disputes will be resolved soon and that GE HealthCare's guidance will revert to something closer to its pretariff outlook.
GE HealthCare expects to continue to see steady demand across all of its segments, with some of its smaller segments -- including pharmaceutical diagnostics, with its higher-margin products -- delivering strong organic growth. We will be closely watching how this exciting and very profitable part of the business expands. And we'll look for management to continue to prioritize the investments that drive these innovations while also keeping a handle on operating expenses.
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