Company will try to stir enthusiasm for unit facing the loss of
By Thomas Gryta
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (December 2, 2019).
General Electric Co. aims to excite investors about its
health-care unit, a business that was tagged to be cast off but is
now central to the company's turnaround efforts.
GE Healthcare, which is based in Chicago and employs more than
50,000 people, makes magnetic-resonance-imaging machines and other
hospital equipment. At the depths of its crisis, GE set plans to
spin off the division. Now, Chief Executive Larry Culp refers to it
as one of the conglomerate's pillars.
The unit, with $20 billion in annual revenue, has been a cash
cow for the troubled company: GE Healthcare accounted for 16% of
GE's total revenue last year but 36% of its operating profit,
according to data from S&P Global Market Intelligence.
But it is about to shrink. Soon after taking charge, just over a
year ago, Mr. Culp struck a deal to sell a part of the division
that serves the biotechnology industry. The sale will raise $21
billion to help pay down GE's debt but leaves GE Healthcare without
its fastest-growing businesses.
For many investors, the health-care business has been on the
periphery for the past two years as they focused on the problems in
GE's power and financial-services divisions. To get them
enthusiastic about it, GE Healthcare is holding an investor meeting
with the division's management on Monday.
"The perception is that the remaining health-care business,
which is very large, is slow growth," said Nigel Coe, analyst at
Wolfe Research, who will be listening for details on how the health
unit plans to increase sales, market share and profit margins.
Former GE Chief Executive John Flannery ran the health business
before being named to the top job in mid-2017. Problems at the
conglomerate came to light during his tenure as CEO, leading to an
aggressive restructuring and the eventual appointment of Mr. Culp
as his successor.
Mr. Flannery planned an initial public offering of stock for the
health division, part of a plan to focus on the power and aviation
divisions. It was a course Mr. Culp supported until he cut a deal
in February 2019 to sell the life-sciences part of the health
business to his former company, Danaher Corp. Analysts expect GE
Healthcare to stay inside GE while management works to improve its
results; Mr. Culp has said GE has "optionality" for its future.
Life sciences includes a biopharma business that sells equipment
used in the biotechnology industry, which makes drugs composed of
proteins made in living cells using a complex production process.
The unit also makes imaging agents used in medical scans to
highlight specific organs or functions, a business that GE is
keeping. The biopharma segment accounted for 60% of the almost $5
billion in life-sciences revenue last year.
The remaining GE Healthcare, expected to be the focus of
Monday's meeting, is the more industrial side and traces its roots
back more than a century when it began developing X-rays. It has
$15 billion in annual revenue and makes MRI machines, computed
tomography scanners, X-ray systems and ultrasound devices. It also
services equipment and sells related software.
That area of the business has slower growth but isn't prone to
cyclical forces like other parts of GE, analysts said, something
that could help the company as it continues to stabilize its
"The business overall is solid but not exceptional," said Melius
Research analyst Scott Davis. He called the division reasonably
profitable and said there is plenty of room for Mr. Culp to improve
sales growth and margins.
Morgan Stanley analysts project 2019 operating profit margins of
19.3% for GE Healthcare, but executives are expected to give
details Monday on what that profitability will be after the company
sells the life-sciences business.
"The near- and medium-term opportunities we see to drive cash
flow growth and improve operating margins in Healthcare are an
important component of the value GE can create for our stakeholders
over time," a GE spokeswoman said.
German rival Siemens AG has spun off its health business into a
separate company, called Siemens Healthineers AG, that is 85%-owned
by the parent. The spinoff's shares are up 20% so far this year,
which is similar to its parent's performance.
Siemens, which once sold products as diverse as mobile phones
and light bulbs, has shed the conglomerate model under CEO Joe
Kaeser and focused on its higher-growth divisions. It plans to spin
off its power business next year, after merging it with its
GE has also streamlined its structure after cash-flow woes
forced the company to twice slash its dividend, leaving it at just
a penny a share. It merged its oil and gas business into Baker
Hughes in 2017 and took a roughly two-thirds stake, but has
recently sold its holdings to less than 40%. GE has also sold off
its stake in Wabtec Corp. after merging its transportation business
with the railroad supplier. GE expects to close the life-sciences
sale to Danaher in early 2020.
After tumbling from $30 to below $10, GE shares have rallied
more than 50% this year to close Friday above $11. The stock has
advanced as Mr. Culp made progress on efforts to pay down debts and
generate cash from the industrial operations.
Corrections & Amplifications General Electric Co.'s
biopharma business accounted for 60% of the almost $5 billion in
revenue from the company's life-sciences segment last year. An
earlier version of this article incorrectly said the biopharma
business accounted for 75% of the segment's $4 billion in revenue.
(Dec. 1, 2019)
Write to Thomas Gryta at firstname.lastname@example.org
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December 02, 2019 02:47 ET (07:47 GMT)
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