Smith & Nephew (SNN) reported EPADS (earning per American Depositary Share) of 86 cents in the second quarter of 2010, beating the Zacks Consensus Estimate by a penny and the year-ago quarter’s 77 cents.
Smith & Nephew reported a 4% year over year increase in revenue to $959 million from $926 million in the year-ago quarter, with growth witnessed across all the three segments: Endoscopy, Advanced Wound Management and Orthopaedics. However, revenues missed the Zacks Consensus estimates of $990 million.
The company reported 1% year-over-year growth in Orthopaedics revenue to $535 million, driven by a 1% decline in the U.S. and an increase of 1% in Europe. Within the segment, revenue from both Reconstruction and Trauma grew by 2% year over year. However, Clinical Therapies revenue declined by 6.6% in the second quarter of 2010.
During the quarter, the performance improvement action taken by Smith & Nephew was reflected in the growth rates of European and emerging markets. Moreover, market acceptance of the new products from the Hips and the Knee franchise gave a boost to the Reconstruction and Trauma revenue. However, the clinical segment’s revenue was affected by the sale and termination of the pain management and spine businesses in the first quarter 2010.
Endoscopy revenue grew 9% year over year to $206 million with 2% growth in the U.S., 10% in Europe and 22% in the rest of the world (ROW) countries. Growth was also witnessed in Japan and the emerging markets. Moreover, strong performance seen in the Arthroscopy business (11%) as well as new product launches contributed to the growth.
Advanced Wound Management segment reported an increase of 5% year over year in revenue to $218 million, with growth witnessed across all geographic regions. European revenues grew by 4%, while revenues in both the US and the ROW countries grew by 7%. Despite being negatively influenced by the timing of price increases in Germany, the segment reported growth across its businesses such as Infection Management product range (7%) and Exudate Management (consistent with year-ago quarter). Besides, the Negative Pressure Wound Therapy (NPWT) progressed well during the quarter.
Trading Profit margin increased 60 basis points to 23.5% in the second quarter 2010. Trading profit margin for the Orthopaedics segment improved by 20 basis points to 24.6%, for the Endoscopy segments increased modestly to 22.9% while for the Advanced Wound Management it improved 230 basis points to 21.4%. The improvement in margins reflected the company’s continued investments in sales team.
Smith & Nephew exited the quarter with a free cash flow of $119 million as compared with $11 million in the year-ago quarter. Cash flow from operating activities was $196 million versus $117 million in the second quarter 2009.
Outlook
Smith & Nephew expects its Orthopaedic Reconstruction and Trauma businesses to continue to derive benefit from recent new product introductions and strong clinical data and expects to focus on its operational performance going ahead. For the Endoscopy and the Advanced Wound segment the company expects above market growth, driven by investment in the high growth segments such as Arthroscopy, NPWT, Exudate Management and Infection.
However, competition remains tough. Smith & Nephew’s competitors in the orthopaedic space include Johnson & Johnson (JNJ), Stryker Corp. (SYK) and Zimmer Holdings, Inc. (ZMH).
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