May 3, 2018 / 6:29 AM / 3 months ago

UPDATE 2-Outgoing Smith & Nephew CEO signs off with a downgrade

* Downgrades full-year revenue growth to 2-3 pct

* Now sees trading margin flat or improving

* CEO: trend already improving in April

* Shares fall 7 pct (Adds CEO comments, analyst reaction, shares)

By Paul Sandle

LONDON, May 3 (Reuters) - Smith & Nephew downgraded its revenue and profit forecasts after a weak first quarter on Thursday, days before Chief Executive Olivier Bohuon will end his seven-year tenure at the artificial knee and hip maker.

Shares in the British company fell 7 percent after it said underlying revenue for the year would rise by 2-3 percent, less than the 3-4 percent predicted in February.

It also lowered trading profit forecasts, predicting a margin at or above the level achieved last year rather than the 30-70 basis point growth it had targeted.

Bohuon, who steps down on Monday, said the business had seen a “mixed performance” in the quarter to end-March, with established markets like the United States and Europe down 2 percent on an underlying basis and emerging markets up 9 percent, resulting in a flat result overall. He said the disappointing performance was mainly because of market weakness, citing changing insurance patterns in the United States and budget constraints in Europe hitting elective surgery volumes in Europe.

Britain’s state-run health service cancelled some operations at the start of the year because of a shortage of capacity for example.

Bohuon said trading had picked up since the quarter end.

“I see an improving trend; April is showing much better trading and coming back to normal levels, much better than we have seen in January, February and March,” he told reporters.

Other areas of weakness included its advanced wound bioactives business, which focuses on difficult-to-treat wounds, where revenue was down 12 percent.

Analyst Kit Lee at Jefferies, who has a “buy” rating on the company, said the divisional trends were familiar but there were more negative than positives in the update.

Bohuon will be replaced by Namal Nawana, who most recently headed medical diagnostics firm Alere, where he oversaw its $5.3 billion sale to Abbott in 2017.

The medical technology firm, which also has wound-care and sports medicine units, is under pressure to improve margins and find new sources of growth as it competes with bigger rivals.

It is a constant presence on analysts’ lists of potential takeovers, with speculation that it could be acquired by a U.S. competitor such as Stryker or be broken up

The company reported first-quarter revenue of $1.2 billion, up 5 percent on a reported basis thanks to foreign exchange tailwinds of 5 percent. (Reporting by Paul Sandle; editing by Kate Holton/David Evans)

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