Medical equipment manufacturer Smith & Nephew (SN.) warns that underlying sales for the year to 31 December 2017 will be at the lower end of its range of 3% to 4%.
The trading profit margin growth for the full year is anticipated to be at the lower end of a range of 0.2% to 0.7%.
Sales in the third quarter to 30 September were up 3% to $1,152m. Berenberg analyst Tom Jones says this was $3m below his forecasts, but dismisses it as ‘within a reasonable range of forecast error.’
Overall, he believes the results were in line as there were some ‘highlights and lowlights’, helping to shed light on why shares in Smith & Nephew are up 1% at £13.97.
HURRICANE DISRUPTION FAILS TO KNOCK KNEE IMPLANT SALES
In the company’s reconstruction division, sales rose 4%, which was mainly driven by a 6% increase in knee implants despite disruption caused by hurricanes in the US and Caribbean.
Unfortunately, the wound care division was weaker as revenue fell 1% on an underlying basis as underperformance in Europe offset a decent performance in North America.
STRONGER GROWTH EXPECTED IN FOURTH QUARTER
Bank of America Merrill Lynch’s Ines Duarte Silva estimates growth of 4% to 5% in Smith & Nephew’s final quarter this year, claiming some volumes lost in the third quarter due to weather should be made up.
She sees the company is an earnings turnaround story and reckons it is inexpensive on an earnings per share basis. Smith & Nephew currently trades on a forecast 15.5 times earnings per share in the year to 31 December 2018.
The company plans to review its cost base, although Berenberg questions whether it will ‘simply defend profitability rather than deliver the long hoped-for improvements.’
He highlights that Smith & Nephew has completed similar efficiency programmes, which on paper achieved their goals, but margins and profit growth rates have failed to live up to investor expectations.
