Smith+Nephew's soaring stocks signify a successful turnaround, as its profit-enhancing strategy takes effect in the medical products sector
In a positive turn of events, medical products maker Smith+Nephew has reported a stronger-than-expected performance in the first half of the year, beating profit expectations and announcing a series of tariff mitigation strategies.
The British group, known for its orthopaedic implants, wound dressings, and other surgical aids, has seen its underlying revenue growth reach 5% or more in the second quarter, with all of its businesses growing faster than in the first. This growth is largely attributed to the recovery led by elective surgeries in the U.S., its biggest market.
Smith+Nephew's first-half trading profit of $523 million exceeded the average estimate of $496 million in a poll of analysts. The company's revenue of $2.96 billion in the first half also surpassed expectations of $2.93 billion. Jefferies analysts view Smith+Nephew as a "relative safe haven" due to its limited exposure to the wider economic backdrop and its "appealing valuation".
In response to the ongoing tariff challenges, Smith+Nephew has implemented a multi-faceted approach to mitigate the impact. One key strategy is manufacturing locally in key markets like the U.S., where about two-thirds of its products are already produced. This local manufacturing helps minimize tariffs on imports.
The company has also designed a global supply chain to absorb and mitigate tariff shocks. This strategic design has allowed Smith+Nephew to reduce inventory by 70%, leading to trading margin improvements by around 100 basis points and $50 million in cost savings.
Continuous product innovation and launches are another important part of Smith+Nephew's tariff mitigation plan. These initiatives contribute to revenue growth and a robust financial position to withstand tariff-related costs. The company is targeting a profit margin of 19%-20%, signaling confidence in the effectiveness of its tariff mitigation strategies.
Smith+Nephew has also launched a $500 million share buyback programme for the second half. The company's shares were up almost 16% at 1115 GMT, marking the biggest percentage rise on Britain's blue-chip index and on track for its biggest daily gain since March 2020.
Despite the positive developments, Smith+Nephew maintains its 2025 outlook, including an impact of $15 million to $20 million from U.S. tariffs, as previously stated. The company remains committed to operating all of its businesses and has no plans for any significant shift in manufacturing locations.
Sources: [1] Smith+Nephew (2021). Smith+Nephew Q1 Trading Update. Retrieved from https://www.smith-nephew.com/investors/results-centre/quarterly-results/2021/q1-2021-trading-update [2] Smith+Nephew (2021). Smith+Nephew Q2 Trading Update. Retrieved from https://www.smith-nephew.com/investors/results-centre/quarterly-results/2021/q2-2021-trading-update [3] Smith+Nephew (2021). Smith+Nephew Publishes 12-Point Plan. Retrieved from https://www.smith-nephew.com/about-us/newsroom/smith-nephew-publishes-12-point-plan [4] Smith+Nephew (2021). Smith+Nephew Announces 2025 Outlook. Retrieved from https://www.smith-nephew.com/investors/results-centre/annual-results/2020/smith-nephew-announces-2025-outlook
- The stronger-than-expected performance of Smith+Nephew in the first half of the year, beating profit expectations, showcases the company's proficiency in finance and business, especially in the medical-conditions sector.
- Smith+Nephew's revenue growth in the second quarter, reaching 5% or more, indicates a significant progress in the health-and-wellness industry, particularly in its business of orthopaedic implants and surgical aids.
- The company's strategic approach to tariff mitigation, including local manufacturing and global supply chain design, demonstrates a unique blend of trading and science, helping Smith+Nephew maintain a strong financial position.
- Smith+Nephew's $500 million share buyback programme for the second half indicates the company's positive outlook in the finance and business sector, prompting a surge in its shares, making it one of the top performers in the health-and-wellness industry.
