Executives from Varex Imaging (NASDAQ:VREX) said recent geopolitical events and tariff volatility have not materially changed demand trends for the company so far in 2026, while outlining expectations for incremental margin improvement as prior tariff costs roll through inventory and highlighting longer-term growth initiatives tied to India manufacturing expansion, photon-counting CT detectors, and cargo inspection systems.
CEO Sunny Sanyal said the company has limited direct business exposure in the Middle East, including minimal footprint in Iran, but is watching for second-order impacts. He noted Varex uses significant ocean freight, though not through the Strait of Hormuz, and said higher oil prices could raise commodity costs. “So far, we have not seen anything of consequence yet,” Sanyal said.
Management characterized the first half of the year as unfolding largely as expected and said early lead indicators—particularly order intake—have remained stable. Sanyal emphasized that Varex’s largest end-market exposure is healthcare, where demand is driven largely by patient dynamics rather than near-term macro events. He said the company has not seen impacts on hospital capital budgets, nor has it heard customers “telegraph” changes in buying behavior.
In response to questions about the company’s roughly 70/30 mix between medical and industrial markets, Sanyal said the medical side appears “somewhat unaffected” to date. On the industrial side, he described non-destructive testing/inspection as also unaffected so far.
On security applications, however, Sanyal said trends appear at least “flat to positive,” adding that the company is seeing “more urgency” and increased inquiries about its technologies.
Sanyal and CFO Sam Maheshwari said Varex adjusted pricing and pass-through mechanisms after a sharp escalation in tariff levels earlier in the cycle. Sanyal said the company’s inventory increased for multiple reasons, and that reductions in tariff rates have not yet fully flowed through results because higher-tariff inventory remains on hand.
Maheshwari said current conditions are “directionally positive,” but cautioned that ongoing policy discussion—including potential Section 301 actions—could lead to further changes. He said Varex continues to mitigate tariff impacts through steps such as supply chain diversification (including efforts to diversify more sourcing out of India), trade-compliance strategies, and continued progress toward “local-for-local” manufacturing.
On profitability, Maheshwari said that if the current tariff regime stays in place, gross margin could improve modestly as older, higher-tariff inventory moves through the P&L over roughly four to five months. He estimated the benefit at “a few tens of basis points,” citing a possible 30 to 50 basis point improvement, compared with a previously discussed 100 to 150 basis point impact when higher tariffs were instituted. He added that the company is watching what happens when temporary tariff measures are replaced.
Sanyal said China’s imaging market dynamics have followed the company’s expectations after a period that included hospital audits, stimulus effects that were initially confusing, and supply chain distortions from customers purchasing too far ahead. He said China remains committed to expanding healthcare delivery in rural markets, describing a pattern where provinces encouraged hospitals with relatively new systems to replace them with updated versions and redeploy displaced systems into rural settings. He called that dynamic “healthy,” saying it increased installed base and refreshed systems.
He said demand now appears “stable to maybe slightly growing” and has shifted toward a more mature replacement-driven pattern, rather than the “frenzied” growth rates seen in prior periods. He added that secular growth in China remains higher than the 2% to 3% growth rates often associated with mature markets.
On competitive positioning, Sanyal said domestic Chinese imaging players are winning share in government tenders, which he said have become “extremely competitive.” He added that this trend has been favorable for Varex because it supplies many of those domestic players. Asked about speculation that large global OEMs might exit or sell stakes in China, Sanyal said the company views such commentary as “mostly hearsay” and did not offer a conclusion.
Separately, Sanyal said he does not see a specific materials-availability issue for Varex akin to helium constraints affecting MRI systems.
Maheshwari provided updates on two India facilities. He said the detector facility is complete and beginning to ramp, with “reasonably decent revenue” expected from India-made detectors in the second half of 2026. On tubes, he said the factory is less than a year away from producing product, with initial batches expected toward the end of calendar 2026.
He said both factories are designed around radiographic products, an area where Varex has had lower market share due to price sensitivity. Management is targeting new products manufactured in India to help gain share. Maheshwari said the company expects a “somewhat linear” growth profile from the beginning of fiscal 2027 through the end of fiscal 2028, targeting about $100 million of incremental radiographic revenue over roughly two years, above organic expectations.
On photon-counting CT, Sanyal described adoption as early but said the technology has proven viable. He said initial deployments have emphasized high resolution, while the longer-term value is “precise material discrimination,” including multi-energy “spectral” imaging. He added that Varex is focused on enabling adoption beyond the largest OEMs and top academic centers. Looking out to 2028, Sanyal said the company’s goal is to have four OEMs deeply engaged in design work; he said Varex has two today and expects additional OEMs in the pipeline, noting the company would feel comfortable with three and “very good” with four by the end of 2028.
Maheshwari reiterated a goal to move corporate gross margin toward the high 30% range over the next few years, citing three drivers:
Photon counting, which he said should carry gross margins above the corporate average and lift overall margins as adoption grows.
Cargo inspection systems, where he said service revenue is “significantly more accretive” on margin as the installed base expands.
India radiographic growth, which he said is expected to be closer to corporate-average gross margin but should contribute meaningful operating leverage.
Maheshwari also discussed a recent debt refinancing, saying the company reduced coupon rates by about 175 basis points, translating to approximately $7 million to $8 million in annual interest savings, or about $0.15 to $0.16 in annualized EPS benefit. He said the refinancing simplified the balance sheet and described the outcome as positive despite choppy markets.
Varex Imaging Corporation is a global provider of X-ray imaging components and solutions for the medical, security and industrial markets. The company designs, develops and manufactures a broad range of products that convert X-ray energy into high-resolution digital images. Its portfolio includes X-ray tubes, flat panel detectors, digital sensors, specialty radiographic tubes and related software, all engineered to meet the demanding requirements of original equipment manufacturers (OEMs) in diagnostic imaging, computed tomography (CT), fluoroscopy, mammography, dental radiography and non-destructive testing applications.
The company’s medical imaging offerings support a wide spectrum of clinical modalities, from portable radiography systems to advanced CT scanners, enhancing image quality and dose efficiency for healthcare providers.
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