- Missed on core profit and margins
- Stock slumps 8% to six-week low
- Previously faced break-up calls
There is ‘panic on the streets of London’ as Smiths (SMIN) missed headline profit and margin targets. While there were some pluses in the engineering outfit’s annual results to end July, it is difficult to dress up the fact that headline profit was limp.
The share price tanked 8% to £16.84, a six-week low and back to May 2024 levels. Heaven knows, investors are miserable now.
This will come as a minor blow to recently appointed chief executive Roland Carter although it’s unlikely to put him under any immediate pressure with shareholders.
ANNUAL RESULTS
Smiths reported group sales of £3.13 billion, slightly below the consensus estimate of £3.15 billion, while EBITA (earnings before interest, tax and amortisation) came in at £526 million, below the consensus of £535 million.
Operating margins were 16.8% versus a forecasted 17%.
‘The company chalked up decent organic revenue growth, with the previous financial year always likely to be a hard act to follow’, said AJ Bell investment director, Russ Mould. ‘Letting the side down was electronic components arm Smiths Interconnect which was unable to protect margins from a decline in volumes.’
WHAT TO WATCH
Analyst consensus anticipates EBITA at £580 million, with organic growth of 5.8% and an operating margin of 17.5%.
Missing these targets could reignite break-up calls. Smiths is an engineering business with many moving parts and has faced investors calls to streamline operations before, leading to the firm’s sale of its medical business in 2022.
New CEO Carter has been with Smiths for donkey’s years and rather than embracing change, he has handed himself a raison d’etre of building on the company’s existing strategy rather than doing anything more revolutionary.
Whether that lasts, time will tell. ‘If the performance of the business was to decline materially then Carter might face some renewed pressure to streamline the focus of the group’, believes AJ Bell’s Mould.
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Steven Frazer) and the editor (James Crux) own shares in AJ Bell.
