Woundcare specialist ConvaTec (CTEC) has been ‘severely impacted’ by supply issues in its advanced wound and ostomy care division, forcing the company to cut its anticipated full year sales growth.

Guidance for full year revenue growth is cut from 4% to between 1% and 2% depending on whether ConvaTec can resolve supply issues, fulfil backorders and recover orders in both divisions.

The supply problems affected sales in Europe, the Middle East and Africa (EMEA) region, down 2% in the three months to 30 September.

In advanced wound care, the medical products provider says supply constraints on its surgical cover dressing and DuoDerm products were affected due to transferring manufacturing lines from Greensboro to Haina.

ConvaTec also struggled to fulfil back orders thanks to delays with logistics, including to the disruption of shipping lanes in the Caribbean due to hurricane activity.

The ostomy care division has also been affected by the same transfer issues and delays in making the lines fully operational.

These problems created a backlog of orders that are only expected to be cleared by the end of the year at the earliest for most products and hit organic sales growth by 3.5% in both divisions.

Associated costs are expected to wipe of 40% of margin benefits achieved from ConvaTec’s margin improvement programme.

In brighter news, overall sales were up 5.1% to $445.5m in the third quarter.

Bank of America Merrill Lynch analyst Ines Duarte Silva says the profit warning may represent a 12% to 13% cut to 2017 earnings estimates, but believes this is priced in through the share price drop.

Shares in ConvaTec slumped 21.4% to 219.6p.

Silva reiterates her ‘buy’ recommendation despite the setback citing attractive end-markets and the ‘likely eventual improvement in margins and acceleration in revenue growth as product supply issues are resolved’.

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Issue Date: 16 Oct 2017