Smith & Nephew (SNN) reported an adjusted EPS of 18.4 cents (EPADS of 92 cents) during the first quarter of fiscal 2011 missing the year-ago quarter’s 18.8 cents (EPADS of 94 cents) and the Zacks Consensus Estimate (ADS) of 93 cents. The company reported revenues of $1,055 million in the quarter, up 6% from the year-ago period and higher than the Zacks Consensus Estimate of $1,032 million.
Among the different regions, revenues from the US, Europe and Rest of the world recorded an underlying growth (after considering currency translation) of 4%, 1% and 8%, respectively. While businesses in emerging markets continued to grow, the devastating impact of tsunami and earthquake in Japan led to $3 million of lower revenue and slightly more profit during the quarter. The company anticipates some further impact on its financials going ahead.
Segments
Smith & Nephew derives revenues from three business units – Orthopedics (consisting of Reconstruction, Trauma and Clinical Therapies), Endoscopy and Advanced Wound Management, the first one contributing the maximum (56%). These units recorded revenues of $590 million (annualized growth of 4%), $233 million (up 8%) and $232 million (up 9%), respectively.
Barring Europe where the Orthopedics segment recorded an underlying decline of 2% sales increased by 5% in the US and 3% in Rest of the world. The price decline in the segment was consistent with the last few quarters, which was largely offset by mix benefits. Under this segment, revenues from all the businesses recorded robust growth – Reconstruction (up 2% to $419 million), Trauma (up 6% to $116 million) and Clinical Therapies (up 2% to $55 million). While the global Knee franchise grew by 5%, Hips declined by 2%.
Within the Endoscopy unit, revenues from the US, Europe and rest of the world increased (on an underlying basis) by 1%, 6% and 12%, respectively. Smith & Nephew witnessed an 8% growth in Arthroscopy (sports medicine) with Repair franchise achieving strong growth, consistent with the last few quarters.
Advanced Wound Management revenues increased in the US (6% underlying growth) due to some distributor stocking last quarter ahead of price increases as well as Europe (2%) and rest of the world (15%). Smith & Nephew recorded a 2% growth in Exudate Management products whereas Infection Management declined by 1% reflecting the impact of austerity measures adopted in European markets. The company also recorded robust growth in Negative Pressure Wound Therapy (NPWT) across all regions. Additional NPWT product launches are expected during the second quarter.
Outlook
Smith & Nephew reiterated its outlook for 2011. The company expects its Orthopedic Reconstruction segment to grow at above-market rate based on its knee franchise. The company expects to achieve above market growth in both Endoscopy and Advanced Wound Management. The Arthroscopy unit is expected to remain strong driven by the Repair Product segment.
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