Siemens Healthineers AG (SHL) Earnings Call Transcript & Summary

Welcome to our Pre-Close Catch-Up for Q4 fiscal year 2026, which was recorded on September 29, 2026. Its content will neither be amended nor updated at any time. With this Q4 episode of our Pre-Close Catch-Up, we aim at having everyone on the same page regarding our upcoming Q4 fiscal year 2026 before we go into silent period. We sum up and repeat relevant topics, which were communicated in public as potentially relevant for the upcoming quarter and address current macro topics, for example, foreign exchange. Obviously, we are before closing and therefore, have no indications on our Q4 actuals for the quarter ending on September 30. And before we start with this episode, let me remind you of the safe harbor statement on our website for this recording. As always, I'll start with some comments on the translational foreign exchange impacts on revenue. As usual, we try to triangulate the translational impact from the latest foreign exchange movements to align the absolute revenue and organic growth numbers in the models. In Q3, we saw a translational headwind of around 1 percentage point. In Q4, we expect this to turn into a translational tailwind with the U.S. dollar and other currencies like the Chinese renminbi so far being stronger in this year's Q4 compared to last year's Q4. Assuming that on average in Q4, the U.S. dollar would be around 1% stronger than in the prior year quarter and assuming for simplification purposes, only a 50% U.S. dollar exposure, this would mean roughly a translational tailwind of around 0.5 percentage point on nominal revenue growth. Equally, with the Chinese renminbi being around 5% stronger than in prior year quarter and assuming a 10% renminbi exposure, this would roughly mean another 0.5 percentage point of translational tailwind on nominal revenue growth, amounting to a translational tailwind of roughly 1 percentage point for the group in Q4. And now to the effects on earnings where the major tailwinds on adjusted EBIT and EPS in fiscal 2026 are foreign exchange, tariffs, and additional inflation. As you know, we left our assumptions for the full fiscal year unchanged for the FX and tariff headwinds. For FX, we assume a headwind of around EUR 0.15 on EPS incrementally compared to fiscal year 2025. The majority of the FX headwind impacts Imaging and Advanced Therapies EBIT, the latter within Precision Therapy segment. In Q3 to-date, around EUR 0.13 of these EUR 0.15 had materialized. So we would expect still year-over-year earnings headwind from FX in Q4, driven by translational effects due to hedging roll-off. For tariff costs, we also assume a headwind of around EUR 0.15 on EPS incrementally compared to fiscal year 2025, not including refunds. Also here, the majority of the tariff headwind impacts Imaging and Advanced Therapies EBIT, the latter within the Precision Therapy segment. EUR 0.12 of these EUR 0.15 have materialized in Q3 to-date. And since, in Q4, tariff costs were already in the comparable prior year period, the year-over-year impact in Q4 this year is expected to be not material. For the additional inflation in the supply chain, we continue to assume a headwind in H2 fiscal 2026 of around EUR 0.05 on EPS incrementally compared to H2 fiscal 2025. With around EUR 0.01 of year-over-year inflation headwind having materialized in Q3, it would be fair to assume a year-over-year headwind of around EUR 0.04 in Q4. And as you know, we said that around EUR 0.05 are equivalent to a mid- to high-double-digit million euro EBIT headwind in H2. With these dynamics in mind, let me quote our CFO with our view on Q4 segment performance as outlined in the Q3 earnings call start, "We expect a clear acceleration of revenue growth in the Synergetic core with Imaging accelerating into the higher single-digits and Precision Therapies continuing growth in the higher single-digits. not fully at the 9% level like in the current quarter." End. The growth acceleration in Imaging is due to revenue shifts from a softer Q3 to Q4 and due to an expected, very good growth momentum in CT. Now to some context regarding margins in Q4 start, "On margins, we expect in Imaging sequential margin expansion compared to the Q3 margin ex refunds from the accelerated growth. In Precision Therapy, year-over-year margin expansion will be tough against the very high prior year quarter of 17%, but we expect a good sequential improvement with a 14% margin ex tariff refunds from Q3 this year." End. Specifically on Diagnostics, we said start, "In Diagnostics, we expect continuous decline at mid-single-digit percentage level also in Q4. In Diagnostics, we continue to expect a significant year-over-year margin decline. However, at least sequentially flat compared to the Q3 margin ex refunds." End. Please bear in mind, in Q3, margins were positively impacted by tariff refunds in all 3 reporting segments. As a reminder, the adjusted EBIT margins in Q3 ex refunds were Imaging, 21.6%; Precision Therapy, 14.1%; Diagnostics, 2.9%; and the Group, 15.4%, all numbers approximate. Again, please bear in mind when looking at the margin developments in Q4 that the inflation headwind is expected to accelerate in Q4 versus Q3, in Q4 to mid-double-digit million euro EBIT headwind. For the below-the-line items, in absence of any further color given on roadshows or conferences, as a reminder, our current assumption for fiscal year 2026 for central items is between minus EUR 250 million to minus EUR 200 million EBIT and for financial income net around minus EUR 330 million. For central items, the remainder to the mid-point assumption for the full year would be the best approach. Also for financial net income, the remainder to the minus EUR 330 million would be the best approach. Q4 financial income is expected to be more negative than Q3, also because in Q3, we received a refund for interest related to the tariff refunds. For the tax rate, the full fiscal year is expected to be closer to 23%, coming from the initial assumption of between 24% and 26%. With the average tax rate in the first 3 quarters being 22.6%, this would indicate a Q4 tax rate within the initial assumption of 24% to 26%. Before I close our pre-close podcast, let me briefly reiterate our fiscal year '27 earnings bridge, one of the most discussed topics in September when we were on the road. In a nutshell, the messaging has not changed since our Q3 earnings release. The jump-off basis in fiscal '26 for the underlying operational double-digit EPS growth should be ex refunds, so between 2.20 and 2.30 in 2026. The additional inflation in the supply chain in fiscal year '27, particularly from memory chips, certain raw materials and logistics costs is expected to be in the same ballpark as our mitigation measures from pricing and cost program in 2027. On the road, we got frequently asked if there was an update regarding inflation in fiscal '27 since our Q3 earnings release. There was not. In this context, we discussed that our current assumption for inflation also considers forward pricing, for example, for memory chips. So we continue to assume a wash between headwind from inflation and mitigation measures in 2027. Finally, the more technical topics of a normalizing tax rate, normal course of refinancing, which has nothing to do with the SAG deconsolidation, and recurring separation costs from SAG would add up to 0.15 of EPS headwind in fiscal year '27. In our discussions on the road, the math then ended up at a mid-2.30-ish EPS number in fiscal year 2027, which should be broadly reflected in the sell-side models by now. And with this final note, I shall close our Pre-Close Catch-Up. As always, the Investor Relations team is available until our silent period starts on October 5. Stay safe, stay healthy. Bye-bye.