March 11, 2016 / 3:14 PM / 4 years ago

GE Health targets profit margins, reversing weak performance

NEW YORK (Reuters) - General Electric Co’s (GE.N) healthcare business said on Friday its top priority is lifting profit margins that were flat in recent years after it failed to cut costs sufficiently.

The logo of U.S. conglomerate General Electric is pictured at the company's site in Belfort, June 23, 2014. REUTERS/Vincent Kessler

The unit expects operating profit margins to widen to 18 percent or more by 2018, up from 16.3 percent last year, John Flannery, chief executive of GE Healthcare, said at an investor meeting.

The company is poised to triple its cost cutting in large part by engineering out costs and introducing new products. It also plans to derive more revenue from digital services.

“Frankly, we didn’t grow margin because we didn’t drive cost down,” in recent years, Flannery said.

GE’s healthcare businesses range from large imaging machines to small diagnostic tools and equipment used in drug manufacturing.

Some analysts have wondered if the company might sell some parts of the portfolio, such as its X-ray business, or bulk up areas with acquisitions.

Flannery said portfolio changes were not a big part of the unit’s current strategy for increasing revenue and profit margins at the existing businesses.

“We’re keeping the X-ray business, period,” he said. “It’s intrinsically connected to the portfolio” because more than 40 percent of bids the company makes to supply equipment require an X-ray component.

“We don’t feel the need to do a major acquisition or divestiture and I don’t want the business distracted from growing earnings,” he said. “We have five years plus of not growing earnings. We’re not going to be a party to that anymore.”

Flannery did not see obstacles to raising profit margins. “It’s our affirmative actions that matter” rather than pricing pressure, he said.

GE’s ultrasound equipment business faced 10 percent annual price declines but still increased profit margins by cutting costs and introducing products that were less expensive to produce, he said.

“Ultrasound is a perfect example,” he said, noting the approach had been “erratically applied” in the past. “Now we’re going to systematically apply it.”

Reporting by Alwyn Scott; Editing by Chizu Nomiyama and Andrew Hay

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