- Full-year earnings beat expectations
- Medium-term guidance increased
- Dividend maintained
Shares in medical devices company Smith & Nephew (SN.) topped the FTSE 100 leaderboard on Tuesday rising 5% to a new eight-month high of £12.21 after earnings beat estimates and the firm raised its medium-term sales guidance.
The company said it expected both revenues and profit to be higher in 2023 with revenues increasing between 5% and 6% and a trading profit margin of at least 17.5% despite continued macroeconomic headwinds.
Cost-saving initiatives and positive effects from operating leverage are expected to offset materials price inflation, higher wages and a 1% foreign-exchange headwind.
NEW MEDIUM-TERM GUIDANCE
Management also updated its medium-term outlook with revenue growth expected to be consistently above 5% compared with prior guidance of between 4% to 6%.
This is expected to be driven by ‘return on innovation’ investments and execution of the group’s 12-point plan.
The trading profit margin is expected to expand to 20% in 2025 compared with 21% by 2024 as previously guided.
HOW DID THE COMPANY PERFORM?
For the year to 31 December, underlying revenues increased 4.7% to $5.22 billion, in line with market estimates. Foreign exchange headwinds of 4.6% reduced reported revenue growth to 0.1%.
Trading profit fell 3.7% year on year to $901 million impacted by higher freight and logistics expenses and a return to normal marketing expenditures.
A lower interest charge and tax rate contributed to a 1% increase in adjusted earnings per share to $0.82 which was around 5% higher than analysts’ expectations.
The board is recommending an unchanged final dividend of $0.23 per share which maintains the full year payout at $0.375 per share.
The sports medicine and advanced wound care franchises contributed underlying growth of 9.2% and 8% respectively while orthopaedics lagged with growth of 4.1%.
Management said it is addressing the underperformance of orthopaedics through its 12-point plan aimed at sharpening commercial focus and reducing overdue orders.
WHAT DID MANAGEMENT SAY?
Chief executive Deepak Nath commented: ‘We continued to outperform in Sports Medicine & ENT and Advanced Wound Management and, even though we are early in our work to fix Orthopaedics, performance improved here too.
‘With our 12-point plan, we are fundamentally changing the way Smith+Nephew operates to drive higher growth and improve productivity.
‘We expect to deliver both faster revenue growth and margin expansion in the coming year, and are setting a solid foundation for our midterm ambitions as we transform to a consistently higher growth company.’
