Shares in medical technology company Smith & Nephew (SN.), known for its replacement hips and knees, fell 3% to £15.73 after saying fourth quarter revenues were expected to fall around 7% leading to a 12% fall for the full year.
Increasing Covid-19 infection rates from mid-October onwards, particularly in the US and Europe, led to more non-elective procedures being postponed as more restrictions were introduced.
Like during the first lockdown the Orthopaedic Reconstruction, Sports Medicine and ENT businesses were most affected as lower levels of elective surgeries took place while Wound Management and Trauma businesses were more resilient.
NEGATIVE OPERATNG LEVERAGE
A large majority of the company’s revenues come from selling consumables and lower volumes can only partially be offset by cost control measures leading to negative operating leverage. As a result, Smith & Nephew estimate that trading profit will fall ‘substantially’ year on year.
Consensus analyst expectations for full year earnings before interest are 50% lower at £588 million on revenues 9.7% down at £4.6 billion.
The company has maintained its strategic focus despite the disruption caused by the pandemic as evidenced by the recent acquisition of Extremity Orthopaedics business Integra Life Sciences Holdings Corporation for $240 million.
As the third quarter results demonstrated, once economies open there is significant pent-up demand driven by an increasing backlog of non-elective procedures.
Full year results will be released on 18 February where the company will provide more detailed profit performance and update the market on the strategic progress made in 2020.
