Siemens Healthineers posted fourth quarter revenues that beat analyst expectations as its Varian oncology unit bounced back from recent problems to grow 23%.
Varian, which Siemens bought for $16.4 billion in 2020, has dragged on the wider business in recent quarters, in part because of supply chain shortcomings. Yet, the unit was a highlight of the fourth quarter, with the jump in sales helping Siemens to grow revenues to 6.1 billion euros ($6.5 billion).
CFO Jochen Schmitz said during a Wednesday earnings call that the “impressive growth was partly due to catch-up revenues from Q3 but mostly driven by the successful conversion of the strong order backlog into revenue.”
Schmitz added that “we will not see the same level of conversion all the quarters coming” and Healthineers is yet to address all of the problems that held back the unit earlier in the year.
CEO Bernd Montag told investors the “quarter will not keep us from making the necessary changes in processes and setup to avoid the volatility that burdened the past five quarters.”
Diagnostic restructuring
The fourth-quarter results call took place days after Bloomberg and Reuters reported that Healthineers is reviewing the options for its diagnostics business, a process that could lead to the sale of the unit. Two analysts asked about plans for the unit, with one noting that the company’s presentation made diagnostics “seem very clearly distinct from the rest of the portfolio,” but the executives just referred back to a prepared statement.
“There's only one priority: transforming the business to win. Everything else would be a distraction,” Montag said. “We are in a runner’s up position in an attractive market.”
The transformation entails restructuring the business and laying off staff. Montag told investors the “transformation is in full swing and will deliver cost reductions of 300 million [euros] by 2025.”
The diagnostics business continued to struggle due to plummeting demand for COVID-19 tests. Sales for rapid COVID-19 antigen tests totaled 53 million euros in the company’s fourth quarter, compared to 232 million euros in the prior year’s quarter. The unit’s revenue declined 16% year over year to 1.2 billion euros.
China pressures easing
Like other medtech companies, Siemens cited the anti-corruption activities underway in China as a drag on its financial performance in the quarter. Montag spent last week in China and returned with insights into how the activities will affect the company.
“I think we can see the first easing. This is causing a lot of uncertainty in the Chinese healthcare provider community, which is not what the government wants,” Montag said. “I expect that this will ease slowly, in the next one to two quarters. I think a potential milestone could be Chinese New Year. My current assumption would be that the second half of the year will give us a very different situation in China.”
Forecast
Siemens expects a comparable revenue growth range of from 4.5% to 6.5% in its next financial year when compared to 2023. Excluding revenue from rapid COVID-19 antigen tests, the forecast growth rate range is from 5% to 7%. The company is assuming no antigen contribution in its fiscal year 2024.
