Smith+Nephew first-quarter misses expectations as knee implants falter
Smith+Nephew Q1 Performance and Outlook
By Nithyashree R B
May 6 (Reuters) - Medical products company Smith+Nephew missed first-quarter sales expectations and flagged slower first-half sales, sending its shares down nearly 5% on Wednesday, while predicting a stronger second half when it launches a new prosthetic knee.
First-Quarter Results and Revenue Growth
In the three months ended March 28, the knee-implant business underperformed as the company said it had deliberately limited volumes ahead of its third-quarter product launch.
Overall underlying revenue growth was 3.1%, just under expectations of 3.2% from a company-compiled poll and below a 6.2% fourth-quarter growth.
Turnaround Strategy and Margin Pressure
Smith+Nephew, which makes orthopaedic implants and wound dressings, completed a three-year turnaround at the end of last year that was aimed at driving sales and cutting costs to ease margin pressure from inflation and supply chain disruptions.
CFO Commentary and Market Reaction
Second-Half Acceleration Expected
CFO SAYS SECOND-HALF ACCELERATION EXPECTED
On an investor call, CFO John Rogers said first‑half sales growth was likely to be around 3.5% - below consensus of about 4.2%. That would be followed by growth of around 8% in the second half, he said, bringing the company to expected annual growth of around 6%.
Share Price Movement
At 1145 GMT, London-listed shares had recovered from early losses of nearly 5% and were down 1.8% at 1,138.5 pence each, underperforming the wider index.
Share Buyback and Investor Sentiment
The company's unexpected $500 million share buyback announcement failed to inspire investors as some warned of possible outlook downgrades for the year, including brokerage ODDO BHF.
Referring to the second-half expected improvement, ODDO BHF analyst Oliver Metzger said "a back-end phasing is often not so attractive for investors".
Challenges in the U.S. Knee-Implant Business
Years of Weakness and Recent Performance
YEARS OF WEAKNESS IN US KNEE-IMPLANT BUSINESS
Orthopaedics, which account for about 40% of Smith+Nephew's sales, are a focus as the company seeks to overcome years of weak performance in the U.S. knee-implant business.
In the quarter, U.S. knee implants fell by 10.3%, leading to overall growth of just 0.8% at the unit.
Tariffs, Policy Changes, and Energy Costs
U.S. tariffs are expected to have a $60 million impact on Smith+Nephew's trading profit in 2026, the company said.
Changes from the start of this year to U.S. reimbursement policy for skin substitutes and energy price surges driven by the war in the Middle East, where the company has sizeable operations, add to the risks to profitability.
Mitigation Measures
Smith+Nephew said, however, it has largely hedged energy costs for 12 months, and has fixed‑price supplier contracts and cost‑saving programmes in place.
(Reporting by Nithyashree R B in Bengaluru; Writing by Pushkala Aripaka; Editing by Subhranshu Sahu, Thomas Derpinghaus and Barbara Lewis)
