GEHC Q2 Deep Dive: Tariff Headwinds and Innovation Pipeline Shape Outlook

Healthcare technology company GE HealthCare Technologies (NASDAQ:GEHC) reported revenue ahead of Wall Street’s expectations in Q2 CY2025, with sales up 3.5% year on year to $5.01 billion. Its non-GAAP profit of $1.06 per share was 15.5% above analysts’ consensus estimates.

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StockStory’s Take

GE HealthCare’s second quarter results were met with a negative market reaction, despite revenue and non-GAAP profit exceeding Wall Street expectations. Management attributed revenue growth to strong demand in the U.S. and EMEA, robust performance in Imaging and Advanced Visualization Solutions, and record backlog levels. However, CEO Peter Arduini cautioned that margin pressure from tariffs and unfavorable mix within certain product lines offset much of the top-line momentum. CFO Jay Saccaro noted that, “tariffs accounted for about half of the year-over-year gross margin decline,” and flagged increased product investments and service contract startup costs as additional margin headwinds.

Looking forward, GE HealthCare’s updated guidance reflects management’s confidence in operational execution, further tariff mitigation, and the commercialization of new products. The company expects higher-margin product launches in late 2025 and into 2026 to support both growth and profitability. Saccaro highlighted, “we’re now in a position to begin executing on substantive supply chain changes,” signaling ongoing efforts to reduce tariff exposure. Management also pointed to a strong innovation pipeline in areas like Photon Counting CT and advanced AI-driven monitoring, which are expected to fill historical portfolio gaps and enhance the company’s competitive position.

Key Insights from Management’s Remarks

Management attributed the quarter’s results to strong commercial execution in key markets, sustained customer investment in capital equipment, and continued progress on its innovation strategy, while margin headwinds were primarily driven by tariffs and product mix.

• Imaging and AVS Strength: Revenue in Imaging and Advanced Visualization Solutions grew due to robust U.S. and EMEA demand, with new product launches generating over half of total sales. Management emphasized success in securing large enterprise deals and the momentum in AI-enhanced ultrasound adoption.
• Tariff Impact on Margins: Tariffs remained a significant drag on adjusted gross margin, accounting for nearly half of the year-over-year decline. Management is executing mitigation actions including supply chain shifts and local-for-local manufacturing to manage future exposure.
• Service Contracts and Product Mix: Startup costs for new multi-vendor service contracts and a shift towards lower-margin life support products within Patient Care Solutions created additional margin pressure. These are expected to improve as new offerings ramp up and higher-value products penetrate the portfolio.
• Backlog and Orders Momentum: The company ended the quarter with a record $21.3 billion backlog, supported by healthy book-to-bill ratios above 1.0. Management noted that large, multi-year customer agreements provide visibility for future revenue but can drive lumpiness in quarterly order growth.
• Innovation Pipeline Progress: Significant investment in R&D is delivering a refreshed portfolio, with upcoming launches in Photon Counting CT, next-generation MRI, and AI-powered solutions across multiple care areas. Management described this as a “catalyst moment” as the company seeks to close historical product gaps and accelerate growth.

Drivers of Future Performance

Management expects future performance to be shaped by continued innovation, tariff mitigation, and the rollout of higher-margin products, though ongoing macro and regional uncertainties remain a factor.

• Tariff Mitigation and Supply Chain: Ongoing actions to restructure the supply chain and move production to tariff-friendly geographies are expected to reduce tariff impacts in 2026. Management signaled that these changes should deliver meaningful cost relief and improve margins over time.
• Product Launches and Portfolio Refresh: A series of high-value product launches—including Photon Counting CT, advanced ultrasound platforms, and AI-powered monitoring—are expected to drive both revenue growth and margin expansion as they address previously unserved segments and command higher service contract value.
• Regional Demand and Market Uncertainty: Management flagged continued strength in the U.S. and EMEA, but remains cautious on China due to extended tender cycles and slower market recovery. The outlook incorporates a conservative stance on China, with upside possible if the market rebounds faster than anticipated.

Catalysts in Upcoming Quarters

Looking ahead, our analysts will be focused on (1) the pace and commercial impact of new product launches in imaging and monitoring, (2) evidence that tariff mitigation actions are flowing through to margins, and (3) any signs of improved tender activity or backlog conversion in China. Progress on strategic M&A and successful integration of key acquisitions will also be important markers for sustained growth.

GE HealthCare currently trades at $73, down from $77.77 just before the earnings. In the wake of this quarter, is it a buy or sell? The answer lies in our full research report (it’s free).

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