Smith & Nephew PLC (LSE:SN, NYSE:SNN), a leading medical technology company, announced in its third-quarter trading report a downward revision of its full-year 2024 revenue and trading profit margin forecasts, primarily due to challenges in China that have impacted its surgical businesses more than expected.
The report, filed today with the Securities and Exchange Commission, details the company's performance for the quarter ended September 28, 2024, and updates its outlook for the remainder of the year and into 2025.
The company reported Q3 revenue of $1,412 million, a 4.0% increase compared to the same period in 2023. This growth was dampened by significant headwinds in China, particularly affecting the surgical segments. Excluding China, Smith & Nephew saw a 5.9% growth. Orthopaedics revenue rose by 2.3%, Sports Medicine & ENT by 3.9%, and Advanced Wound Management by 6.5%.
Deepak Nath, Chief Executive Officer, noted operational and commercial improvements from the company's 12-Point Plan are on track and have started to yield financial benefits. Despite the setbacks in China, Nath expressed confidence in the company's transformation and its long-term growth drivers, including robotics adoption and product innovation.
Looking ahead, Smith & Nephew now expects full-year 2024 underlying revenue growth to be around 4.5%, down from the previously forecasted range of 5.0% to 6.0%. The trading profit margin for 2024 is also expected to grow by up to 50 basis points compared to last year's 17.5%, which is less than the previously anticipated 18.0%.
These revised expectations are attributed to the reduced operating leverage from slower revenue growth, particularly due to the ongoing challenges in China.
For 2025, the company anticipates expanding its trading profit margin to between 19.0% and 20.0%, driven by the continued execution of its 12-Point Plan improvements. However, the company remains cautious about the uncertainty surrounding the China market.
Smith & Nephew's report underscores its commitment to innovation, with recent product launches such as the CATALYSTEM◊ Primary Hip System and TOTAL ANKLE◊ Patient-Matched Guides. The company also announced a co-marketing agreement with JointVue for its OrthoSonic™ 3D Surgery Planning Technology to enhance its CORI◊ Surgical System for robotic-assisted knee arthroplasty.
The information presented in this article is based on the company's SEC filing and reflects the current state of Smith & Nephew's business operations and market conditions.
In other recent news, Smith+Nephew announced a reshuffling of its board of directors' roles and responsibilities, effective from October 1, 2024.
Analyst firms RBC Capital and BofA Securities both maintain an optimistic outlook on the company. RBC Capital reiterated its Outperform rating, based on the potential of Smith+Nephew's Orthopaedics division to achieve margins comparable to industry peers. BofA Securities also expressed confidence in the company, maintaining a Buy rating.
InvestingPro Insights
Smith & Nephew's recent financial data from InvestingPro provides additional context to the company's Q3 report and revised outlook. Despite the challenges in China, the company's revenue for the last twelve months as of Q2 2024 stood at $5,642 million, with a growth rate of 5.48%. This aligns with the company's adjusted full-year 2024 revenue growth forecast of around 4.5%.
The company's P/E ratio (adjusted) of 22.97 and a PEG ratio of 1.02 suggest that the stock is reasonably valued relative to its earnings growth. This could be of interest to investors considering the company's long-term growth prospects, including its focus on robotics adoption and product innovation.
Two key InvestingPro Tips are particularly relevant:
1. Smith & Nephew has maintained dividend payments for 32 consecutive years, demonstrating a commitment to shareholder returns despite current challenges.
2. Analysts expect the company to be profitable this year, which aligns with management's expectation of margin expansion, albeit at a slower pace than initially projected.
These insights, along with 11 additional tips available on InvestingPro, offer a more comprehensive view of Smith & Nephew's financial health and market position. The InvestingPro fair value estimate of $33.4 per share, compared to the previous close of $28.85, suggests potential upside for investors willing to look past the short-term headwinds in China.
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