GEHC Q3 Deep Dive: Margin Pressures Offset Revenue Outperformance as AI Launches Accelerate

Healthcare technology company GE HealthCare Technologies (NASDAQ:GEHC) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 5.8% year on year to $5.14 billion. Its non-GAAP profit of $1.07 per share was 2.2% above analysts’ consensus estimates.

Is now the time to buy GEHC? Find out in our full research report (it’s free for active Edge members).

StockStory’s Take

GE HealthCare’s third quarter saw revenue and adjusted profit come in slightly above Wall Street’s expectations, but the market reacted negatively, reflecting concerns about margin pressures. Management pointed to strong demand across imaging and pharmaceutical diagnostics as primary drivers, with robust orders growth and new enterprise deals contributing to a healthy backlog. However, increased tariffs and a product hold in Patient Care Solutions weighed on profitability. CEO Peter Arduini noted, “We delivered robust orders growth of 6% with growth across all segments,” while CFO Jay Saccaro highlighted that tariff impacts reduced adjusted EBIT margin by 180 basis points, partially offset by volume and pricing gains.

Looking forward, GE HealthCare’s updated guidance is shaped by ongoing investments in R&D and operational efficiency, with a focus on launching new AI-enabled products and expanding recurring revenue streams. Management expects margin improvements as tariff mitigation efforts take hold and strategic initiatives in supply chain and price management yield results. CEO Peter Arduini emphasized the medium-term growth opportunity from the launch of a significant number of new AI-driven solutions, stating, “We are entering a new wave of innovation across the enterprise…these new products are expected to drive significant growth over the medium term and play a key role in margin expansion.”

Key Insights from Management’s Remarks

Management attributed the quarter’s revenue growth to strong performance in Imaging, Advanced Visualization Solutions, and Pharmaceutical Diagnostics, while margin pressure stemmed from tariffs and investments in new product launches.

• Imaging strength: Revenue in the Imaging segment grew due to customer upgrades of aging equipment and robust demand in the U.S. and EMEA, though margins declined mainly because of tariff pressures.
• Advanced Visualization Solutions (AVS) momentum: AVS posted its fourth consecutive quarter of sales and margin growth, benefiting from successful launches of AI-powered products and stronger U.S. demand.
• Pharmaceutical Diagnostics expansion: Pharmaceutical Diagnostics saw strong growth in contrast media and radiopharmaceuticals, contributing to recurring revenue but experiencing margin compression from the Flyrcado launch and a recent acquisition.
• Tariff mitigation efforts: Management reported progress in reducing tariff exposure by sourcing from lower-cost regions and implementing value engineering, with about half of gross tariff impact already mitigated.
• Patient Care Solutions recovery: Revenue in Patient Care Solutions fell due to a product hold, but with shipments resuming and new leadership in place, management anticipates sequential improvement in this segment’s sales and margin.

Drivers of Future Performance

GE HealthCare expects revenue growth to be driven by new AI-enabled product launches and recurring service streams, while ongoing cost initiatives and tariff mitigation are expected to support margin expansion.

• AI product pipeline launch: The company plans to introduce a significant number of AI-enabled products and departmental solutions, particularly in Imaging and Patient Care Solutions, with management expecting these launches to accelerate revenue growth and improve margins over the medium term.
• Tariff and supply chain actions: Efforts to mitigate tariff headwinds include sourcing shifts, price increases, and operational improvements, which management believes will help reduce the negative impact on earnings in the coming quarters.
• Recurring revenue focus: An expanding portfolio of radiopharmaceuticals, digital solutions, and long-term service contracts are expected to increase recurring revenue, providing greater earnings stability and supporting the company’s medium-term growth targets.

Catalysts in Upcoming Quarters

In the coming quarters, our team will closely watch (1) the launch and adoption rates of new AI-driven products, especially those introduced at RSNA; (2) margin recovery in Patient Care Solutions following the product hold; and (3) progress on tariff mitigation and supply chain adjustments. Additional signals include the pace of recurring revenue growth from radiopharmaceuticals and digital solutions.

GE HealthCare currently trades at $77.36, down from $79.44 just before the earnings. Is the company at an inflection point that warrants a buy or sell? Find out in our full research report (it’s free for active Edge members).

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