Smith & Nephew (SNN) reported an adjusted EPS of 21.6 cents (EPADS of $1.08) during the fourth quarter of fiscal 2010 surpassing the year-ago quarter’s 20.3 cents (EPADS of $1.02) and the Zacks Consensus Estimate (ADS) of $1.02.
For the full year, EPS came in at 73.6 cents (EPADS of $3.68), well above the previous year’s 65.6 cents (EPADS of $3.28) and the Zacks Consensus Estimate (ADS) of $3.45.
Smith & Nephew reported revenues of $1,067 million in the quarter, unchanged from the year-ago period and surpassed the Zacks Consensus Estimate of $1,061 million. For 2010, revenues increased 5% (4% underlying growth) to $3,962 million, surpassing the Zacks Consensus Estimate of $3,937 million.
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 (55%). These units recorded revenues of $584 million (underlying decline of1% from the year-ago quarter), $232 million (unchanged) and $251 million (4% underlying growth), respectively.
The Orthopedics segment recorded an underlying decline of 1% in the US and 4% in Europe while sales derived from rest of the world increased 3%. The situation in Europe continues to be affected by adoption of austerity measures by many countries. Trading profit margin of the unit increased by 130 basis points (bps) to 25.2% due to better efficiency and inventory management.
Within the Endoscopy unit as well, revenues from both US and Europe declined (on an underlying basis) while rest of the world recorded an increase of 14%. Emerging markets also contributed to the strong growth.
Smith & Nephew witnessed an 8% growth in Arthroscopy (sports medicine) with Repair franchise achieving strong growth, consistent with the last few quarters. Trading profit margin of the Endoscopy unit declined 190 bps due to higher investments associated with product development and sales force.
Advanced Wound Management revenues increased in the US (17% underlying growth) as well as rest of the world (5%), while Europe continued to record lower sales in the backdrop of government austerity measures. However, the company plans to improve its performance despite these challenges based on new product launches and higher investments in sales and marketing.
The revenue growth in the US was driven by strong performance of Negative Pressure Wound Therapy (NPWT). Japan and emerging markets continued to record growth momentum during the quarter. Trading margin of this unit improved 830 bps to 27.5% based on better productivity. However, the year-ago quarter was impacted by significant investments in the NPWT business.
In 2011, Smith & Nephew 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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