Smith & Nephew’s Reported Revenue Falls 4 Percent in Third-Quarter

Smith & Nephew plc CEO Olivier Bohuon isn’t about the be swayed by the company’s disappointing third-quarter earnings.

Despite a 4 percent drop in reported revenue and sagging sales in China, Bohuon and his executive management team still are forecasting a higher trading profit margin and higher underlying revenue growth this year.

Smith & Nephew’s underlying revenue rose 4 percent to $1.10 billion (724 million pounds) fueled in part by growing demand for knee implants and a strong U.S. performance, but the total nevertheless was 1.9 percent lower than a consensus forecast of $1.126 billion.

“We are pleased with our progress in 2015, with the third quarter again demonstrating that our actions are delivering a strong performance, such as our above-market revenue growth in knee implants and the sustained improvement in Advanced Wound Care. We had a good quarter in the United States, our largest market, and are successfully stabilizing our European business, which delivered a second consecutive quarter of revenue growth against a market backdrop that remains challenging,” Bohuon said in prepared remarks.

Jefferies analyst Martin Brunninger said that sales in both Smith & Nephew’s advanced surgical devices and advanced wound management units both came in below his estimates. “They’ve missed across the board and they have done an acquisition which could be seen as expensive,” he said, referring to the company’s Oct. 29 announcement that it had purchased Blue Belt Holdings Inc. for $275 million. The deal gives Smith & Nephew a foothold in orthopedic robotics-assisted surgery, a market it predicts will grow considerably in the next decade.

Brunninger said the Blue Belt acquisition makes sense in the longer-term.

“The world doesn’t really need any more knees and hips – there are too many systems on the market already. However if you add a system that will facilitate the procedure, that’s something that surgeons need and want today,” he said.

Smith & Nephew reported mixed Q3 results in its franchises. Sports Medicine Joint Repair sales fell 6 percent to $143 million (but rose 4 percent on an underlying basis). The company generated double-digit growth in U.S. Sports Medicine Joint Repair proceeds, driven largely by its inheritance of ArthroCare products. The gains, however, were offset by a slowdown in China, where capital and consumable sales were compounded by distribution channel de-stocking.

Revenue in Arthroscopic Enabling Technologies slipped 2 percent to $132 million (down 8 percent on a reported basis), with weakness in mechanical resection and capital sales offsetting strong Coblation revenue growth.

Trauma & Extremities slid 2 percent to $122 million despite good momentum from the Evos Mini Plating System. In October, the company expanded its Trigen Nail portfolio with the launch of the Trigen Meta-Tan System, which addresses various femoral fractures.

In the Other Surgical Businesses franchise the company’s Ear, Nose and Throat (ENT) and Gynecology businesses both performed well, with overall revenue up 10 percent. In September, Smith & Nephew launched the Nasastent Dissolvable Nasal Dressing, a splint used to minimize bleeding and prevent adhesions after sinus surgery. Overall, Other Surgical Businesses franchise revenue rose 6 percent to $50 million.

Global knee sales rose 6 percent (3 percent on a reported basis) to $205 million, with a solid performance from the Journey II Total Knee System. Hip Implants fell 9 percent to $137 million. Overall Reconstruction product proceeds fell 2 percent to $342 million.

Advanced Wound Care revenue fell 4 percent to $316 million, according to the company’s latest earnings report. Revenue in Advanced Wound Devices swelled 17 percent to $44 million, with strong demand for its Pico disposable negative pressure wound therapy device contributing to sales. Advanced Wound Bioactives proceeds grew 2 percent to $84 million, with revenue from Santyl partially offset by the continuing reimbursement headwinds affecting Oasis.