* Q3 adjusted EPS 16.6 cents, in line with forecasts
* Q3 revenue $952 million (consensus $971 million
* Weak European markets offset by savings, wound management
By Paul Sandle
LONDON, Nov 1 Artificial knee and hip maker
Smith & Nephew posted a 10 percent rise in third-quarter
underlying trading profit on Thursday after cost savings offset
a worsening market in Europe.
The British company, which also has wound management and
sports medicine units, reported trading profit of $207 million
on revenue of $952 million, up 1 percent on a underlying basis.
Both numbers fell short of average market expectations, but
adjusted earnings per share of 16.6 cents was in line.
Chief executive Olivier Bohuon has cut costs and reorganised
the business to target emerging markets as demand in Europe and
the United States remains lacklustre.
The savings delivered a 190 basis point improvement in
trading profit margin in the quarter, keeping the company on
track for its target of improving the margin for the full year.
"The benefits of our efficiency improvements have helped to
offset the impact of on-going tough conditions in Europe, and we
continued to make good commercial progress in the emerging
markets," Bohuon said on Thursday.
The orthopedic sector been hit in the downturn as patients
delay elective procedures, such as knee surgery for sports
injuries, either because they lack insurance, face higher
out-of-pocket costs or are worried about taking time off work.
U.S. competitors Stryker and Zimmer both saw
pricing pressures in the last quarter, they said last month.
S&N said U.S. revenue in orthopedics was flat year-on-year,
while its other established markets fell 1 percent, reflecting
weaker demand in Europe. Emerging and international markets saw
a 3 percent increase.
"The trend in Europe is definitely challenging," Bohuon
said. "Austerity measures are in place in almost every country."
Parts of S&N's hip business have also been hit by
longstanding concerns about metal-on-metal resurfacing
technology, and its knee business also had a weaker quarter.
But orthopedics was broadly offset by a better-than-expected
performance in advanced wound therapy, the company said.
Shares in the company were trading 1.2 percent lower at 647
pence by 1315 GMT.
Analyst Tom Jones at Berenberg said the results were
reasonable, with weakness in Europe and knees broadly offset by
a stronger performance in wound management and sports medicine.
But what caught his eye was the $264 million in trading cash
flow in the quarter, resulting in net cash of $379 million.
"In a slower growth environment Smith & Nephew is generating
significant cash flows which, in our view, can only increase
pressure on the company to deploy it in some way, be it into M&A
or a buyback," he said.
Acquisitions are part of Bohuon's growth strategy, and he is
looking in the areas of advanced wound therapy, minimally
invasive surgery and in emerging markets.
"We are working hard trying to find the right fit," he said.
Analysts on average were expecting S&N to report trading
profit of $212 million on revenue of $971 million, resulting in
adjusted earnings per share of 16.6 cents.