Smith & Nephew Reports 7 Percent Rise in Q2 Sales

Talk about roller-coaster rides.

Smith & Nephew plc’s second-quarter profit plummeted 31 percent due to acquisition-related costs but sales rose 7 percent in the three-month period ended June 30. CEO Olivier Bohuon said the results reflect his company’s “strategy to rebalance the business towards higher growth markets.”

Q2 profit at the United Kingdom firm fell to $89 million from $129 million in the year-ago period, impacted by costs related to the $1.7 billion acquisition of ArthroCare, which was finalized at the end of May. Sales in the three-month period rose to $1.1 billion, the company’s latest earnings report shows.

Bohuon said Smith & Nephew drove good growth in sports medicine joint repair, with U.S. sales of hip and knee products boosting the company’s Orthopaedic Reconstruction business. Investments in emerging and international markets delivered a 17 percent increase in revenues.

The company said its Advanced Surgical Devices (ASD) unit generated 9-percent higher sales year-over-year to $810 million, with revenue up 4 percent in the United States and flat in other established markets, but gaining 19 percent in emerging and international markets. Sales from the ASD unit’s knee- and hip-implant franchises rose 2 percent and 3 percent, respectively, while the Sports Medicine Joint Repair franchise delivered 9-percent growth during the quarter, which included one month’s trading from ArthroCare.

The Advanced Wound Management (AWM) business contributed $337 million in quarterly revenue, up 1 percent from 2013, which the company compared against an “estimated global market growth rate of 2 percent.” Within the segment, Advanced Wound Care revenue was down 8 percent, which the company partially attributed to its execution, as well as further de-stocking by wholesalers, while sales from Advanced Wound Devices climbed 1 percent and “mainly [reflect] the continued competitive pressures in traditional canister-based negative pressure wound therapy (NPWT) in Europe.”

In June, Smith & Nephew said it had temporarily halted distributing its Renasys line of NPWT products in the United States while the U.S. Food and Drug Administration reviews a number of new design features made to the systems. At the time, the company indicated that applications for 510(k) clearance had been filed with the regulator and were “awaiting action.” Smith and Nephew downgraded the full-year outlook for the AWM division, forecasting that it will now grow below the market rate, but Bohuon said he expected the unit to recover in 2015.

Going forward, the company said it remains confident in its overall outlook for the full year. Specifically, Smith & Nephew said the Orthopaedic Reconstruction segment is anticipated to grow at close to the market rate, while Trauma & Extremities is expected to be in line with the market rate and Sports Medicine is projected to surpass it.

Earlier this year, Smith & Nephew was the subject of takeover rumours, with Stryker Corp. CEO Kevin Lobo confirming that his company had been in the early stages of potentially making a bid for the device maker before a report made the matter public. However, Stryker later said it no longer was interested in pursuing the buyout. Meanwhile, analysts suggested last month that Smith & Nephew could become the next takeover target for U.S. medical technology companies looking to undertake tax-inversion deals.