Bloomberg News

Smith & Nephew Rises Most in 3 Months on Earnings Report

May 03, 2012

Smith & Nephew Plc (SN/), Europe’s biggest maker of artificial hips and knees, rose the most in three months after first-quarter earnings beat analyst estimates, driven by knee replacements and wound care.

Smith & Nephew gained 4 percent, the most since Feb. 2, to close at 629.50 pence in London trading, giving the company a market value of 5.6 billion pounds ($9.1 billion).

Trading profit, which excludes restructuring and acquisition costs, increased to $252 million from $241 million a year earlier, the London-based company said in a statement today. Earnings on that basis totaled 19.5 cents a share, exceeding the 19-cent average of eight analyst estimates compiled by Bloomberg.

This year will be a “critical” year of transition for the company, Chief Executive Officer Olivier Bohuon said in a call with media today. He still expects “modest growth” in trading profit this year and said he would be surprised if the company didn’t announce more than one deal in emerging markets this year.

Revenue rose to $1.08 billion from $1.06 billion a year earlier, matching the average estimate of 12 analysts. Sales from the wound business during the quarter rose 5 percent to $240 million while revenue from surgical devices increased 3 percent to $839 million.

Knee Replacements

Knee-replacement sales increased 6 percent during the quarter while hip replacement revenue fell 2 percent, the company said in a slide presentation posted on its website. Sales from sports medicine joint repair rose 7 percent during the quarter, the company said.

This was the first quarter where the company reported revenue from orthopedics and endoscopy under one division, called Advanced Surgical Devices, and wound care under Advanced Wound Management.

Smith & Nephew still expects revenue from the sports medicine and advanced wound management units will expand more quickly than the market, while orthopedic reconstruction will probably grow close to the market rate and orthopedic trauma will lag behind.

“I’m really quite pleased with the numbers,” Navid Malik, an analyst with Cenkos Securities Plc (CNKS) in London, said in an interview today. He recommends buying the shares. “Going into these results, there was a lot of concern about orthopedics. Outside of hips, everything appears to be growing.”

Smith & Nephew’s trading profit margin grew 0.5 percentage point for the quarter on cost-cutting. The company also pared debt down to $28 million from $351 million a year earlier.

The company said previously it will reduce its 11,000- person workforce by 7 percent over three years as it seeks to save $150 million a year.

To contact the reporter on this story: Allison Connolly in Frankfurt at aconnolly4@bloomberg.net.

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net.


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