ii view: Smith & Nephew ups focus on shareholder returns

First-half results to 30 June

• Adjusted revenue up 5% to $2.96 billion (£2.22 billion)
• Trading profit up 11% to $523 million (£392 million)
• Trading profit margin of 17.7%, up from 16.7% in H1 2024
• Interim dividend up 4.2% to 15 US cents
• Net debt of $2.7 billion, unchanged from late December

Guidance:

• Continues to expect full-year 2025 adjusted revenue growth of around 5%
• Continues to expect trading profit margin of between 19% and 20%

Chief executive Deepak Nath said: “I’m pleased with our strong performance in the first half of 2025. We are delivering sustained higher revenue growth, increased profitability and better cash generation. As expected, revenue growth accelerated in the second quarter, with all regions and business units contributing. We saw a quarter-on-quarter improvement in our Orthopaedics business, and this was the fourth consecutive quarter of sequential improvement from US Reconstruction & Robotics on an average daily sales basis.”

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ii round-up:

Smith & Nephew (LSE:SN.) today detailed sales and profits comfortably beating City expectations with the hip and knee replacement maker also announcing a new $500 million share buyback programme.

First-half adjusted sales up 5% to $2.96 billion (£2.2 billion), and aided by ongoing product innovation, pushed adjusted profits up 11% to $523 million. A continuing performance improvement plan helped raise cash flows, underpinning a new dividend payout policy of 35% to 40% of adjusted earnings per share. An interim dividend of 15 US cents per share is up 4.2% from a year ago and payable to eligible shareholders on 7 November. 

Shares for the FTSE 100 company rose 14% in UK trading having come into these latest results up 16% so far during 2025. The FTSE 100 index is up almost 11%. Shares for rival medical devices maker Zimmer Biomet Holdings Inc (NYSE:ZBH) are down 12% year-to-date.

Smith & Nephew operates across the three divisions of Orthopaedics, selling replacement hips and knees; Advanced Wound care items; and Sports Medicine & ENT (Ear, Nose and Throat), offering products to repair or remove soft tissue. Under CEO Deepak Nath, the Watford-headquartered company has been pursuing a 12-point plan to improve efficiency and performance. 

Advanced Wound care sales led during the period, rising 7% on an adjusted or organic basis to $845 million and beating analyst forecasts by around 3%. 

Both Sports Medicine and Orthopaedic-related sales improved 4% on the same basis to $923 million and $1.19 billion respectively, although with only Sport Medicine revenues marginally exceeding analyst forecasts. 

Geographically, an adjusted sales gain of 8.7% for its major US business outpaced a 7.4% improvement for other established markets such as those in Europe. Adjusted Emerging Market revenues fell 0.2%. 

Smith & Nephew left full-year guidance unchanged as it continues to expect adjusted sales growth of around 5% and a trading profit margin of 19% to 20% - potentially up from 2024’s 18.1%. 

Broker Morgan Stanley reiterated its ‘overweight’ stance on the shares post the results. A third-quarter trading update is scheduled for 6 November. 

ii view:

Started in Hull in 1856, Smith & Nephew today employs around 18,000 people. Orthopaedics generated its biggest slug of sales throughout 2024 at 40%, followed by Sports Medicine & ENT at 31% and Advanced Wound Management the balance of 29%. Geographically, the US accounted for the bulk of sales during 2024 at 54%. China came in at almost 4% of sales with the UK a similar amount. 

For investors, raised inventory device levels in China for reconstruction surgery continue to dampen overall Emerging Market demand. A share price to net asset value above the three-year average may suggest the shares are not obviously cheap. US trade tariffs are expected to add a net impact of $15 to $20 million during 2025, while currency movements can also have an impact. 

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More favourably, a focus on innovation has seen three-quarters of revenue growth during this latest period coming from products launched in the last five years. Diversity in both products and geographical regions exists, while the newly announced share buyback programme adds to an estimated future dividend yield of over 2%. 

In all, and despite ongoing risks, trading momentum and exposure to ageing global populations are likely to keep investors supportive of this UK-headquartered medical devices maker. 

Positives: 

• Product and geographical diversification
• Exposure to favourable demographics

Negatives:

• Falling emerging market sales
• Subject to currency headwinds

The average rating of stock market analysts:

Strong hold