A weaker than anticipated first quarter at Smith & Nephew (SN.) is expected to hit full year sales growth, which is forecast to fall to 2% to 3%, from between 3% to 4%.
Shares in Smith & Nephew slumped 6.7% to £13.06.
Trading profit margins are anticipated to be ‘at or above that achieved’ in 2017, previously a range of 30 to 40 basis points.
This is not the first time Smith & Nephew has disappointed the market after warning on full year sales for 2017 in November.
The company also endured a mixed 2016 due to a slowdown in Chinese government spending and excessive stock, while low oil prices made trading difficult in the Gulf States.
WHAT WENT WRONG?
Revenue from the woundcare specialist’s established markets fell 2% in the first three months of the year.
This was blamed on softer market conditions and a weaker than anticipated performance from Advanced Wound Bioactives (AWB) after revenue dropped 12%.
Sales of prescription ointment SANTYL were weak due to more seasonality in sales pattern, which was affected by some destocking from customers.
Wound management product OASIS also performed ‘significantly below last year.’
Smith & Nephew expects a mid-single digital percentage decline in revenue from the franchise in 2018. This depends on procedure volumes returning to normal levels over the rest of 2018.
Outside of AWB, overall sales were up 5% to $1,196m, boosted by positive currency movements.
The standout division for the woundcare company was Sports Medicine Joint Repair, delivering 6% revenue growth thanks to demand for rotator cuff repair technology.
WHAT DO THE ANALYSTS SAY?
UBS analyst Ian Douglas-Pennant says overall sales missed consensus by 2% and flags trading was slightly softer even when compared to weak results from Smith & Nephew’s competitors.
Bernstein’s Lisa Bedell Clive says incoming chief executive officer Namal Nawana has experience with challenged businesses such as Johnson & Johnson, but good execution is vital.
The analyst believes investors are frustrated they will have to wait longer for a material turnaround at Smith & Nephew.
