Smith & Nephew’s Q1 sales miss the mark

Smith & Nephew (NYSE:SNN) missed expectations with its 1st-quarter revenues, saying sales were off in China and the Middle East, offsetting stronger demand in the U.S.

The London-based orthopedics and wound care giant posted sales of $1.14 billion, up 3.0% from Q1 2015; the consensus analyst estimate was for sales of $1.16 billion. Adjusted to exclude the effects of exchange rates and acquisitions, underlying growth was 4%, Smith & Nephew said.

SNN shares closed down -1.0% at $34.09 yesterday in New York; in London, SN shares were down -3.3% to £11.26 as of about 7:30 a.m. Eastern.

CFO Julie Brown said Chinese de-stocking – an issue dating back to mid-2015 – should ease in the 2nd half of the year.

“We expect this to continue into Q2, but then we will have lapped this issue from Q3 onwards,” Brown said.

Emerging markets, which account for 13% of total sales, are an important growth opportunity for the group as demand for Western treatment grows. China alone makes up 40% to 45% of its sales in developing economies.

Demand growth in China, however, has slowed with the economy, while the Gulf states have weakened because of the prolonged downturn in oil prices.

Smith & Nephew affirmed its outlook, saying still expects good underlying growth in 2016. Brown said she still expects adverse currency moves to drag on 2016 margins by about 120 basis points.

“Many of the positive trends seen in the 2nd half of 2015 continued to drive good performance in the 1st quarter of 2016. In particular, strong sales of the Journey II knee system helped us deliver 9% growth in knee implants, and high demand for our shoulder repair portfolio underpinned 11% growth in sports medicine joint repair,” CEO Olivier Bohuon said in prepared remarks.

“Geographically, our established markets revenue growth of 6% reflects our success in the U.S., the group’s largest market, and the sustained improvements we have made in Europe. Good double-digit growth in most of our emerging markets businesses was overshadowed by China, as expected, and economic conditions in the Gulf region,” said Bohuon, who is still working even as he battles cancer.

“The integration of Blue Belt Technologies, the robotics-assisted orthopedic surgery business acquired at the start of the year, is going well. We are excited by the prospects for the existing partial knee reconstruction platform and the new product pipeline,” he said. “Overall, we continue to expect good underlying revenue growth in 2016 as we benefit from our investments in existing businesses, acquisitions and pioneering technologies.”

Material from Reuters was used in this report.

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