Siemens Healthineers Non-COVID Q4 Revenues up 11 Percent; CEO Addresses Rumors of IVD Business Sale

Original from: 360DX

Siemens Healthineers reported Wednesday that its non-COVID-19 revenues rose about 11 percent year over year on a comparable basis in its fiscal fourth quarter with strong growth in its Varian Medical Systems and imaging segments, along with low-single-digit growth in its diagnostics segment.

Erlanger, Germany-based Siemens reported total revenues of €6.06 billion ($6.47 billion) in the quarter ended Sept. 30, up 1 percent from €6.00 billion one year earlier. The firm also reported revenues were up 8 percent on a comparable basis.

CEO Bernd Montag said in a conference call that the revenue growth, excluding the COVID-19 testing revenues, "came on top of an already strong prior-year quarter performance." 

The firm's diagnostics adjusted revenues, including sales of COVID-19 antigen tests, fell 16 percent to €1.21 billion compared to €1.44 billion in the prior-year quarter, mostly due to plummeting sales of COVID-19 tests. Excluding the antigen test business, which the firm has discontinued, Siemens reported its revenues rose about 2 percent year over year on a comparable basis with strong growth in the Europe, Middle East, and Africa (EMEA) market and double-digit declines in Asia-Pacific including China and Japan.

Asked during the conference call about reports that Siemens was considering selling its IVD business, CFO Jochen Schmitz said the company is focused only on its ongoing multiyear transformation project to retire older instrument lines and cut costs to transform the diagnostics division into a more streamlined business. Other considerations, including rumors about a possible divestiture of its IVD business, are a distraction, he noted.

"We are solely focused on the transformation project for diagnostics." 

During his presentation, Montag indicated the company sees the imaging, Varian, and advanced therapies segments as benefiting one another, sharing a business model in which both its equipment sales and services are profitable. The diagnostics business, on the other hand, has a different razor-razor blade business model through which revenue growth and profitability depend on continuous growth of the reagent stream per analyzer.

"Imaging, Varian, and advanced therapies, on the one hand, are truly synergetic, and for these three, our recipe is 'winning together' — or, in other words, using scale," he said. "For diagnostics, on the other hand, the recipe is focus, and there's only one priority: transforming the business to win. Everything else would be a distraction."

He said Siemens is in a runner-up position in diagnostics whereas the rest of Siemens Healthineers' business segments are clear leaders in innovation, growth, and margins.

The diagnostics segment has far longer equipment business cycles than the other three segments, and a platform like the Atellica Solution can have a 20-year-plus lifetime. The diagnostics market also has a more fragmented, competitive environment, and while Siemens is an established player, Montag said its growth and profit performance is below its potential. 

"With our decisive portfolio simplification and our focused transformation program, we are on the path to unleash this potential," he said. "The market is very attractive, and so, the investment into the transformation is clearly set to create value."

Sharon Bracken, head of diagnostics for Siemens, said in an interview ahead of Wednesday's call that lab testing volumes have generally increased post-pandemic and the diagnostics market overall is seeing stable low-single‑digit sales growth in core diagnostics tests. Sales are on the rise for the firm's Atellica CI Analyzer immunoassay and clinical chemistry instrument that the company launched this summer as well as for related consumables, which are the same consumables used by the firm's flagship Atellica Solution instrument. 

Company officials have said the launch completed the Atellica lineup of instruments for high-, medium-, and low-volume laboratories, which has been a priority as the company has ended sales of legacy analyzers to simplify its product lines and become a leaner company.

The firm also reported Wednesday its Varian Medical Systems adjusted revenues were €1.02 billion for the quarter, up 23 percent from €829 million one year earlier. Siemens attributed the sharp rise to a catch-up effect of overcoming logistics challenges during the previous quarter.

Siemens' imaging adjusted revenues were €3.33 billion in the recently completed quarter, up 4 percent compared to €3.20 billion in the year ago quarter. The firm said those gains reflect contributions from rising sales of its molecular imaging and magnetic resonance products.

Advanced therapies adjusted revenues were €564 million, down 2 percent from €578 million year over year. The firm said it saw sharp comparable revenue growth in its Asia-Pacific and Japan regions as well as significant revenue growth in China and moderate growth in the EMEA region, although revenues in the Americas were flat.

Siemens posted net income of €540 million, or €.48 per share, during fiscal Q4 compared to net income of €636 million, or €.56 per share, a year ago. On an adjusted basis, EPS for the recently completed quarter was €.58.

The company said its R&D spending shrank about 2 percent year over year to €485 million from €497 million, while its SG&A costs grew less than 1 percent to €942 million from €939 million.

During Q4 2023, Siemens recorded €29 million in costs in the diagnostics segment due to the transformation started in late 2022 intended to transform the business into a leaner, more streamlined operation. The firm also reported those costs were offset by savings connected with that transformation.

"The diagnostic transformation is in full-swing and will deliver cost reductions of €300 million by 2025," Montag said.

As part of that transformation, Siemens recently notified authorities in New Jersey of their intent to lay off employees at a facility in Flanders, New Jersey, to consolidate its Atellica Solution instrument manufacturing operations in a Dublin facility. The New Jersey Department of Labor and Workforce Development said Siemens has given notice so far of layoffs for 367 positions during 2023 and 2024, a total that includes some layoffs that already occurred.

For the full fiscal year 2023, Siemens reported revenues in 2023 of €21.68 billion, down less than 1 percent from €21.71 billion in fiscal 2022. That includes a 24 percent drop in diagnostics revenue, largely on the falloff of COVID-19 antigen test sales. The company reported the decline was offset by growth in the company's Varian and imaging businesses as well as overall price increases.

Excluding COVID-19 antigen test revenues, the company said its revenue rose about 1 percent over the prior year. COVID-19 tests brought in €121 million in revenues in fiscal year 2023, down from €1.5 billion in fiscal 2022.

Siemens reported a full-year net income of €1.53 billion, or €1.35 per share, compared to €2.05 billion, or €1.81 per share, in fiscal 2022. The firm also reported adjusted earnings per share of €2.02 for fiscal 2023.

The company reported it spent about 5 percent more on R&D during 2023, €1.87 billion compared to €1.79 billion the year before. Its SG&A expenses were up about 6 percent, to €3.61 billion compared to €3.41 billion the year before.

The firm ended the quarter with €1.64 billion in cash and cash equivalents.

Siemens officials guided to comparable revenue growth in fiscal year 2024 of 4.5 to 6.5 percent year over year and adjusted EPS in the range of €2.10 to €2.30 per share.

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Source: Siemens Healthineers Non-COVID Q4 Revenues up 11 Percent; CEO Addresses Rumors of IVD Business Sale