ii view: knee ops accelerate Smith & Nephew sales

Fourth-quarter (Q4) and Full-Year (FY) results to 31 December

• Adjusted Q4 revenue up 6.2% to $1.7 billion (£1.27 billion)
• FY trading profit up 15.5% to $1.21 billion 
• Trading profit margin of 19.7%, up from 18.1% in 2024
• Final dividend of 24.1 US cents 
• Total 2025 dividend up 4.3% to 39.1 US cents
• Net debt of $2.76 billion, up from $2.71 billion a year ago

Guidance:

• Continues to expect full year 2026 adjusted revenue growth of around 6%
• Expects growth in full year 2026 trading profit of around 8%

Chief executive Deepak Nath said:

"I am pleased that a strong fourth quarter helped us meet or exceed our 2025 targets for revenue growth, profitability and cash generation. 

"With our strengthened foundations and new strategy, we are well set to expand our leadership in healthcare innovation and realise sustainable value for shareholders, while continuing to deliver for customers, employees and communities into the future."

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ii round-up:

Medical device maker Smith & Nephew (LSE:SN.) marked the end of its performance improvement plan with an acceleration in revenue growth and a reiteration of 2026 growth forecasts first given in December.

Higher-than-expected demand for knee replacements helped drive fourth-quarter adjusted sales up 6.2% from a year ago to $1.7 billion (£1.27 billion), and an improvement on third-quarter growth of 5%. Profit margin of 19.7% in 2025 is up from 18.1% the year before, driven by annual adjusted profit up 15.5% to $1.21 billion.

Set against the backdrop of military action in the Middle East, shares in the FTSE 100 company fell 4% in UK trading, having risen by a third during 2025. The FTSE 100 index rose by just over a fifth last year, while competitor Zimmer Biomet Holdings Inc (NYSE:ZBH) fell 15% in 2025. 

Smith & Nephew operates across the three divisions of Orthopaedics, selling replacement hip and knees, Advanced Wound care items, and Sports Medicine and ENT (Ear, Nose and Throat), offering products to repair or remove soft tissue.

Management flagged underlying revenue growth of more than 5% for all three divisions in 2025. A 12-point plan to improve efficiency and performance was replaced at the end of the year by a new RISE strategy, targeting financial goals through to 2028.

The Watford headquartered company forecasts adjusted sales and profit growth of between 6% and 8% respectively in 2026. That compares to targets under the new rise strategy of 6-7% for revenues and 9-10% for trading profits. 

A final dividend of 24.1 US cents, payable to eligible shareholders on 27 May, leaves the total 2025 payment up 4.3% to 39.1 US cents.

Broker Morgan Stanley reiterated its ‘overweight’ stance on Smith & Nephew shares post the results. A first-quarter trading update is scheduled for 6 May.

ii view:

Founded in 1856, Smith & Nephew today operates in more than 100 countries. Orthopaedics generated most sales during 2025 at 40%. That was followed by Sports Medicine & ENT at 31% and Advanced Wound Management the balance of 29%. Geographically, the US accounted for most sales  at 54%, with other Developed markets 30% and Emerging Markets 16%.  

Strategic pushes under the new RISE strategy include ongoing product innovation, reaching more patients by taking market share and executing efficiently. 

For investors, raised inventory device levels in China for reconstruction surgery continued to dampen overall emerging market demand. US tariffs made for a $17 million impact on profits during this latest financial year. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while currency movements can hinder performance.

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To the upside, a focus on innovation saw 60% of adjusted 2025 revenue growth come from products launched over the last five years, including 15 new innovations during 2025. Bolt-on acquisitions continue to be made, with Integrity Orthopaedics the group’s latest. Diversity in both products and geographical regions exists, while the payment of a dividend since 1937 now leaves the shares on a prospective yield of around 2.2%.

For now, and despite ongoing risks, broad trading momentum and exposure to ageing global populations will likely see investors remain supportive of this UK headquartered medical devices maker.

Positives: 

• Product and geographical diversification
• Exposure to favourable demographics

Negatives:

• Subject to currency headwinds
• China inventory challenges

The average rating of stock market analysts:

Strong hold