- Full-year guidance reduced
- China to remain a drag
- Stronger margin gains from 2025
Smith & Nephew (SN.) sank to the bottom of the FTSE 100 index, falling 13% to a new six-month low of 956.78p after the knee and hip implants maker lowered full-year revenue growth guidance on China headwinds.
The shares are down around 11% for the year, compared with a 5% gain for the blue-chip FTSE 100 index.
CEO Deepak Nath commented: ‘While the revised outlook reflects the headwinds across our surgical businesses in China, we remain convinced that our transformation to a higher growth company, with the ability to drive operating leverage through to the bottom line, is on the right course.
‘We delivered encouraging growth in most segments and markets in the third quarter as the 12-Point Plan drove further financial improvements. We are making progress in both Hip and Knee Implants in the US, although there is more to do.’
REVISED OUTLOOK
Revenue for the third quarter to 28 September increased 4% to $1.41 billion and excluding the impact from China, it grew 5.9%, supported by 5% growth across established markets with the US contributing 4% revenue growth.
The company noted that the sports medicine division continued to deliver strong growth across established markets and advanced wound management delivered it best quarter of the year.
Despite expectations for a ‘strong’ finish to 2024, China will remain a headwind, reflecting reduced end-consumer demand and destocking from distribution partners.
Consequently, Smith & Nephew now expects slower underlying full-year revenue growth of 4.5%, rather than the 5% to 6% expected previously. This is below company-compiled consensus forecasts calling for 5.2% full-year growth.
Trading margin is now expected to increase by only 0.5% to 18%, compared with a prior expectation of ‘at least 18%’.
More positively, the company said it expects to increase the trading margin ‘significantly’ in 2025 to between 19% and 20% driven by continued productivity gains and cost savings.
EXPERT VIEW
Russ Mould, investment director at AJ Bell, commented: ‘Smith & Nephew’s comeback post-pandemic has been uneven, and the share price has spluttered.
‘That attracted activist investor Cevian Capital onto the shareholder register in search of an opportunity. Cevian knew a lot of work was needed to fix Smith & Nephew, but it will still be furious at the latest setback, no doubt prompting it to be more vocal in how the business should be run.’
Disclaimer: Financial services company AJ Bell referenced in the article owns Shares magazine. The author (Martin Gamble) and the editor (James Crux) own shares in AJ Bell.
