Smith & Nephew’s Q3 Sales Rise Despite Dip in Profit

Smith & Nephew plc’s third-quarter earnings report is nothing to brag about.

But it’s nothing to be ashamed of, either.

Profit at the United Kingdom-based orthopedic device manufacturer fell 16.4 percent to $102 million but sales jumped 12 percent compared with the same period in 2013 to $1.1 billion, meeting analyst expectations. Executives attributed the sales growth to recent product launches in the Sports Medicine and Trauma & Extremities franchises, as well as sales-force investment.

“Sports Medicine Joint Repair…produced double-digit growth in the quarter, and the emerging markets business increased revenue by 20 percent,” CEO Olivier Bohuon said. “We are delivering on our strategy to rebalance Smith & Nephew by strengthening our higher growth platforms, which currently represent more than half the business up from just 35 percent three years ago.”

Sales from Smith &Nephew’s Advanced Surgical Devices (ASD) unit grew 17 percent year-over-year to $816 million, with revenue up 5 percent in the United States to $395 million, down 2 percent in other established markets to $290 million and rising 21 percent in emerging and international markets to $131 million. Revenue from the ASD unit’s knee- and hip-implant franchises both increased 1 percent to $198 million and $152 million, respectively, while sales from the Sports Medicine Joint Repair franchise grew 11 percent during the quarter to $152 million.

Quarterly sales from the Advanced Wound Management (AWM) business were flat at $332 million. AWM revenue dropped 8 percent in the United States to $110 million and fell 1 percent in other established markets to $180 million, while sales rose 19 percent in emerging and international markets to $42 million. The company noted that revenue in the AWM division was impacted by a U.S. distribution hold placed on its Renasys negative pressure wound therapy device in June. Meanwhile, Advanced Wound Care revenue was down 3 percent to $207 million, with sales of Advanced Wound Devices plummeting 17 percent to $43 million.

“In U.S. reconstruction, our better performance continued with a second quarter at or above market growth, led by standout growth in hips,” Bohuon said. “We still have more work to do in Europe and in advanced wound care in the U.S., but our track record has been established.”

Smith & Nephew executives said sales guidance for the full year “remains unchanged.”

Commenting on the results, Edison Investment Research analyst Mick Cooper said the figures highlight the importance of the company’s focus on high-growth areas. “There was also an encouraging uptick in growth in U.S. hip sales on the back of its Verilast hip products,” he added.

Smith & Nephew indicated that the integration of ArthroCare, which the company agreed to buy earlier this year for $1.7 billion to boost its sports medicine business, is progressing well, highlighting 3 percent growth in revenue from arthroscopic enabling technologies. Bohuon noted that Smith & Nephew’s acquisition strategy remains unchanged, focused on high-growth businesses, as well as further distributors in emerging markets.