Shares in medical products group Smith & Nephew (SN.) gained nearly 3% to £13.30 on Thursday despite third quarter growth falling short of expectations and the firm lowering its 2021 guidance.
Underlying revenues to 30 September grew 2.3% to $1.266 billion compared with consensus expectations of a 5.1% rise, prompting management to lower full-year 2021 top-line guidance to the lower end of the targeted range.
As a result, revenues are now expected to grow closer to the lower bound of the 10%-to-13% range in the year to December 2021 while the trading profit margin is expected to be closer to 18% than 19%.
HEADWINDS
The main culprits for the third quarter miss were the disruption caused by the spreading delta-variant and supply chain constraints.
The company expects the impact from the virus to be ‘less’ in the final quarter while supply constraints and inflation pressures are expected to remain a headwind.
Growth was driven by a strong performance from Sports Medicine & ENT (ear, nose, and throat) and Advanced Wound Management, with both franchises delivering underlying growth above pre-pandemic levels.
The Orthopaedics division, which includes replacement knees and hips, was held back by disruption to elective procedures in hospitals caused by Covid-19 infections.
EXPERT VIEW
Healthcare analyst Dr Adam Barker at Shore Capital said investor focus will shift to the company’s guidance following performance in the final quarter.
Barker commented: ‘It’s very likely the Delta variant will become more infectious as the weather turns in its favour. How much more though is not easy to calculate. However, we think it’s sensible to assume that Q4 will be worse than Q3 in this regard.’
Consequently, Barker remains cautious on the shares and maintained his hold recommendation.
READ MORE ABOUT SMITH & NEPHEW HERE
