Smith & Nephew (LSE:SN.), the global medical technology giant, has been on a tear in the market of late. With a history dating back to 1856, this company has proved its ability to adapt and thrive in the ever-evolving healthcare sector. But what’s behind the recent movement in the Smith & Nephew share price? Let’s dive into the latest earnings report and see why investors are taking notice.
Earnings report
The company’s second-quarter results for 2024 show some promising signs. Revenue reached $1.4bn, representing a 5.6% increase compared to the same period last year. This growth was driven by strong performances across multiple segments. Orthopaedics was up 5.8%, with notable rises in Hip and Knee Implants outside the US. Sports Medicine & ENT showed robust 7.6% increases, despite difficulties from China’s sports medicine volume-based procurement initiative. Advanced Wound Management returned to profit with a 3.3% increase, with all segments contributing positively.
It seems like the company’s focus on efficiency and productivity is paying off. The trading profit margin expanded to a healthy 16.7% in the first half of 2024, up from 15.3% in the same period last year. This improvement reflects some really positive results from the company’s 12-point plan for growth. Notably, the firm has significantly improved its cash flow. Trading cash flow jumped to 60%, compared to just 26% in 2023. This resulted in an impressive doubling of trading cash flow to more than $284m.
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Building for the future
Management continues to invest heavily in innovation, which is crucial for maintaining a competitive edge. Recent product launches and enhancements include the expansion of the CORI Surgical System (now recognised as a leader in robotics-assisted surgery), full commercial launch of the AETOS Shoulder System targeting one of the fastest-growing segments in Orthopaedics, and US regulatory approval for the new CATALYSTEM Hip System. These innovations are expected to drive profits in the coming years, especially as demographics show the market for such products growing steadily.
In the latest report, management has maintained its 2024 guidance. The company expects underlying revenue growth between 5% and 6%, with a trading profit margin of at least 18%. The market seems to be responding positively to these developments. With the shares up more than 20% in the last month alone, investors appear to be recognising the potential in the recent turnaround efforts.
While the overall picture looks promising, it’s important to note that many challenges remain. The company is still working to improve inconsistent performance in US Hip and Knee Implants.
Furthermore, as a global company, management must manage supply chain complexities and potential disruptions, especially in light of recent global events that have highlighted the vulnerabilities in international trade and logistics.
One for the watchlist
The firm’s latest earnings report suggests steady progress towards the long-term turnaround strategy laid out in previous reports. With strong revenue growth, expanding margins, and a focus on innovation, I feel that the business is well-positioned for future success.
For those looking to build positions in the healthcare sector and in FTSE 100 companies with global reach, I think the stock warrants a closer look. As the business continues to innovate and expand its market presence, I’ll definitely be keeping it on my own watchlist.
