Smith & Nephew Breaks Record With $5 Billion Posted

Its stock price surged 8.5 percent after med device manufacturer Smith & Nephew reported revenue north of $5 billion for the first time in its 164-year history. It also forecasts that 2020 sales will increase by 4.5 percent even though it provides a cautionary statement regarding the uncertainty of the coronavirus running its course in Asia.

Although Smith & Nephew is enjoying a victory, the road to success was rough and rocky at times. In 2017, the British-based device maker faced pressure from American activist investor Paul Singer and his hedge fund Elliott Management to spin off business units. Smith & Nephew rebuffed Singer's demands for the company to streamline its operations and turned to advisors at Morgan Stanley and Lazard for assistance.

Become a Subscriber

Please purchase a subscription to continue reading this article.

Subscribe Now

CEO Namal Nawana came on board and dramatically increased revenue by introducing a new operational structure that divided the company into three business units: sports medicine, orthopedics, and wound management. The company also boosted its numbers by negotiating a series of deals, the largest being its $660 million acquisition of Osiris Therapeutics. A short 18 months later, however, and Nawana left S&N over a pay disagreement, which shook investor confidence once again.

The stock fell by 8 percent after Nawana’s announced departure, but it was just a blip. Former CEO of Roche Roland Diggelmann stepped up from the non-executive director role to the chief executive position. The company’s stock price bumped up once again with the new revenue report.

The fourth-quarter revenue report for sports medicine climbed almost 9 percent while the full year produced $5.2 billion in sales – an increase of 4.8 percent from the year earlier. Also, sales were up almost 17 percent for emerging markets in the fourth quarter. In terms of S&N's orthopedics unit, sales of knee implants increased 5 percent while sports medicine joint repair generated a 14 percent increase. The Q4 report is the first for the company under the new CEO's leadership, and Diggelmann is cautiously optimistic.

“The improved underlying revenue growth of 4.4 percent in 2019, the best for several years, has propelled group sales above $5 billion for the first time in Smith & Nephew’s history,” said the chief executive officer. “All franchises and regions meaningfully contributed to this record.”

“Smith & Nephew is monitoring the Covid-19 outbreak close, which introduces additional uncertainty,” the company said on Thursday. “Our full-year outlook assumes that the situation normalizes early in the second quarter.”

Analysts are also optimistic about the company's future. Citi, for instance, has a buy rating on the stock as they "see improving top-line growth, modest margin expansion underpinned by cost savings and balance sheet optionality."