Smith & Nephew (SNN) reported an adjusted EPS of 18.1 cents (EPADS of 91 cents) during the second quarter of fiscal 2011, higher than the year-ago quarter’s 17.1 cents (EPADS of 8 cents). However, the earnings missed the Zacks Consensus Estimate (ADS) of 94 cents.
The company reported revenues of $1,077 million in the quarter, up 5% (underlying, after considering currency translation) from the year-ago period and higher than the Zacks Consensus Estimate of $1,044 million.
Moreover, one less trading day in the reported quarter compared to the year-ago period reduced the growth rate by almost 1%. Among the different regions, revenues from the US, Europe and Rest of the world recorded an underlying growth (after considering currency translation) of 5%, 2% and 9%, respectively.
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 (55%). These units recorded revenues of $588 million (underlying growth of 4%), $231 million (up 5%) and $258 million (up 8%), respectively.
Orthopedics business recorded growth across all the regions – 4% in the US, 2% in Europe and 6% in Rest of the world. However, the pricing pressure deteriorated during the reported quarter compared to the approximate 2% decline of the recent quarters. The price decline was largely offset by revenue mix benefits from new and premium products.
Under this segment, revenues from all the businesses recorded robust growth – Reconstruction (up 3% to $412 million), Trauma (up 4% to $115 million) and Clinical Therapies (up 6% to $61 million). While the global Knee franchise grew by 7%, Hips remained unchanged compared to the year-ago quarter.
Within the Endoscopy unit, revenues from the US and rest of the world increased (on an underlying basis) by 5% and 9%, respectively. However, Smith & Nephew witnessed flat growth in Europe due to the adoption of healthcare system austerity measures.
A 6% growth in Arthroscopy (sports medicine) was experienced with Repair franchise achieving strong growth, consistent with the last few quarters. Visualisation revenues declined by 9% and represented 12% of Endoscopy revenues. In June 2011, Smith & Nephew acquired Tenet Medical Engineering for $35 million, which markets leading-edge patient positioning systems.
Advanced Wound Management revenues increased in the US (14% underlying growth) with robust growth in Negative Pressure Wound Therapy (NPWT) based on some significant contracts from hospitals. Revenues increased in Europe by 2% and consolidation of distributor network in Canada led to 14% growth in Rest of the world.
Smith & Nephew recorded a 2% growth in Exudate Management products whereas Infection Management remained flat reflecting the impact of austerity measures implemented in the European markets. To address these challenges, the company has made several marketing investments.
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 strongly driven by the Repair Product segment.
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