Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Siemens Healthineers AG (SMMNY, Financial) confirmed its outlook for comparable revenue growth and adjusted EPS for fiscal '24.
- Varian delivered a solid performance with 10% growth and a healthy 16.6% margin.
- Diagnostics significantly expanded its margin to 7.4% due to a well-executed transformation program.
- The company has a strong and growing order backlog with an equipment book-to-bill rate of 1.07.
- Siemens Healthineers AG (SMMNY) is optimistic about future growth prospects due to secular growth drivers like aging populations and rising noncommunicable diseases.
Negative Points
- Revenue growth in Q3 was only 4%, mainly held back by a 13% decline in China.
- Imaging growth was impacted by the anti-corruption campaign in China, leading to a lower-than-expected performance.
- Foreign exchange headwinds negatively impacted margins across several segments, including Imaging and Advanced Therapies.
- The company had to lower its growth range for Imaging due to continued revenue decline in China.
- Despite the positive outlook, the company acknowledged that further margin improvement in Diagnostics will not happen at the same speed as seen this year.
Q & A Highlights
Q: What came as a surprise driving the miss and guidance cut in Imaging growth this quarter?
A: The primary issue was China, which is more of a book-and-bill region. We expected better contributions from China, but it did not materialize. We do not expect the stimulus program to impact revenue this fiscal year. However, we see good progress in Tier 1 national hospitals and expect momentum early in the next fiscal year. We still feel confident about margin expansion in Imaging.
Q: Can you provide confidence that China expectations for fiscal '24 and '25 are realistic?
A: In Q3, China revenue was slightly above Q2, showing signs of stabilization. The book-to-bill ratio in China was above 1 for the second consecutive quarter. We expect further stabilization in Q4 and are confident that China will stop its year-over-year decline, backed by scheduled backlog and bottom-up planning.
Q: What is the margin headwind from China being soft, and how does it affect fiscal '25 expectations?
A: The higher loss from China amounts to about 150 basis points for the group, translating to roughly EUR300 million in revenue. This has a significant impact as short-term cost adjustments are limited. For fiscal '25, we expect China to reverse its decline, contributing significantly to growth and supporting our margin expansion assumptions.
Q: Are there any supply chain or customer installation issues contributing to uncertainty in Imaging?
A: There are no supply chain issues. The main issue is the missing book-and-bill business in China. Sometimes customers hesitate to finalize installations due to civil engineering requirements. However, we see stabilization and improved book-to-bill ratios, indicating a return to growth.
Q: What is the outlook for Diagnostics margins, and can mid-teens margins be realistic beyond 2025?
A: The current margin uptick is due to the transformation program, which includes one-off cost reductions. Further margin improvements will come from the gradual decline of legacy costs and growth in the Atellica business. We are confident in reaching the 8% to 12% range but may not hit double digits next year. Mid-teens margins are achievable in the midterm.
Q: How should we view the group sales growth guidance after the revision in Imaging growth?
A: Given the lower growth from China, we see ourselves more at the lower end of the range for the group this fiscal year. The guidance remains ambitious but realistic.
Q: What is the impact of new therapies and theranostics on Imaging order book?
A: We see good growth in Molecular Imaging, driven by increased demand for PET and SPECT CT scans. The excitement around new therapies and theranostics is contributing to this growth, and our PETNET business is also growing significantly.
Q: How does the broad portfolio in Molecular Imaging support higher incremental margin accretion for Imaging?
A: Molecular Imaging contributes about 15% of Imaging's top line and is at the midpoint of Imaging margins. This, along with other factors, supports positive growth and margin expansion in Imaging. We are very optimistic about the future potential.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
