Smith & Nephew disappoints on margins

Shares in Smith & Nephew fell this morning after it posted lower third quarter profits, which were hit by poor margins in its orthopaedics divisions.

The medical technology business said that pre tax profits in the three months to October had fallen to $188m, down from $201m the previous year.

Total revenues were $1.03bn, up from $941m in 2010, but a squeeze on margins meant earnings per share slipped from 15.4c to 14.9c.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Two of S&N's three businesses delivered strong trading margins, it said; endoscopy was up to 23.7% and advanced wound management rose to 25.4%.

However, this compared with an orthopaedics' trading margin of 15.6%, which the company said was "due to continuing adverse sales mix, high periodic costs, and the need to reduce costs to better reflect market conditions".

Chief executive, Olivier Bohuon, the company was taking steps to reduce the cost base in orthopaedics "that is too high for on-going market conditions".

"I expect to see material improvements from Q4 onwards and am confident that the group will deliver a Q4 trading profit margin above 24%," he said.

This would compare with an overall trading margin of 19.8% in the third quarter.

The firm said its revenue guidance for 2011 was unchanged but this didn't stop disappointed investors pushing the share the price down almost 4% in morning trading.