2ndUPDATE: Smith & Nephew 3Q Net +73%;US Hip, Knee Sales Lag
(Recasts, adds detail from analyst conference call.)
By Jason Douglas
Of DOW JONES NEWSWIRES
LONDON -(Dow Jones)- Smith & Nephew PLC (SN.LN) Friday reported a 73% rise in
third-quarter net profit, driven by an ongoing push to boost margins, but said
it's not fully benefiting from a fledgling recovery in the U.S. market for
replacement hips and knees, estimated at around $11 billion a year.
The London-based orthopedics company echoed big rivals like Zimmer Holdings
Inc. (ZMH), Johnson & Johnson (JNJ) and Stryker Corp. (SYK) Friday, saying the
number of operations being performed in the U.S. ticked up during the third
quarter following months of sluggish growth. About half Smith & Nephew's revenue
comes from the U.S.
But while the overall market for new joints grew about 5%, growth in sales of
Smith & Nephew's hips and knees was one percentage point behind, Chief Executive
Officer David Illingworth told reporters.
Flagship products like its Birmingham hip resurfacing system, or BHR, and
Journey knee are made for young and active patients. Unlike retirees with no
jobs to go to, they have been deferring procedures because they're reluctant to
take time off work or have balked at the cost in cash or insurance premiums.
Those younger patients aren't yet rushing back to their surgeons. "We are
making progress over the last quarter, but we continue to be disproportionately
affected by younger and more active patients," Illingworth said Friday.
The company didn't give specific figures but said sales of high cost products
like the BHR, which accounts for about 25% of its U.S. hip sales, were weak in
the third quarter but sales of other implants outpaced the market as broader
surgery rates improved.
Illingworth told analysts on a conference call Friday it is possible some
surgeons are substituting a BHR for a more basic product, but the company isn't
sure that's happening yet.
Smith & Nephew said Friday third quarter net profit rose to $128 million from
$74 million a year earlier, on revenue down 2% at $915 million. Earnings per
share, excluding restructuring, amortization and other costs, were 16.8 cents,
comfortably beating analysts' forecasts of between 13 cents and 14.5 cents.
Nomura Code Securities analyst Charles Weston said the figures reflect a
better-than-expected outcome from the company's earnings improvement plan, as
well as a lower tax rate.
Smith & Nephew has been trimming costs by closing some big overseas offices,
shutting factories and shifting production to China as part of its plan to get
trading margin to 24.5% by the end of 2010. Trading margin excludes the impact
of some costs like acquisitions and amortization. Friday, it said it delivered a
410 basis point improvement over the third quarter and its trading margin stood
at 22.8% on Sept. 26.
The company reported a 5% annual decline in third quarter revenue at its
orthopedic trauma unit, which makes products to fix broken bones. A big military
order boosted the third quarter figure last year, Illingworth said.
Nevertheless, he added he wasn't satisfied with the trauma unit's performance
and a new head of its overall orthopedics business has been tasked with
improving it.
At 1521 GMT, shares in Smith & Nephew were down 3.5 pence or 0.7% at 536.5
pence, underperforming a 0.3% higher FTSE 100 index.
Company Web site: www.smith-nephew.com
-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@
dowjones.com
(END) Dow Jones Newswires
11-06-091053ET
Copyright (c) 2009 Dow Jones & Company, Inc.
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