Shares of Smiths Group (LSE: SMIN) fell by 1% in early trade after the engineering company announced a fall in both revenue and headline operating profit. Revenue declines in the Smiths Medical and Smiths Detection offset gains from elsewhere in the business — including at John Crane, the firm’s largest division, which provides products and services to the oil and gas sector.
Total revenues fell to £2.95bn from £3.1bn a year ago as market conditions in the healthcare and defence/security sectors — bitten by government funding constraints — continue to prove challenging.
Another significant headwind faced by Smiths Group has been the impact of currency translation and transactions, which totalled £43m, or almost 8% of headline operating profit. Operating profit fell to £504m from £560m in 2014.
In order to reposition the group to drive revenue growth, Smiths Group said it is increasing investment in product innovation, as well as expanding in higher growth markets such as India and Brazil.
“We remain well placed to benefit from growth in energy demand, the need for new fuel-efficient aircraft, increased US residential construction and investment in wireless networks,” the chief executive, Philip Bowman, said.
“However, we remain cautious about sectors such as healthcare, homeland security and defence, which are subject to government funding constraints, although there are signs that the defence market is beginning to stabilise.”
The full-year dividend increased by 2% to 40p and the board has a medium term objective to maintain dividend cover of around 2.5 times.
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Mark Stones has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.