ii view: Smith & Nephew wounded by weak US implants

Second-quarter (Q2) and first-half (H1) results to 30 June

• Adjusted Q2 revenue up 1.6% to $1.59 billion (£1.19 billion)
• H1 trading profit up 8.1% to $566 million
• H1 trading profit margin of 18.3%, up from 17.7% in H1 2025
• Interim dividend up 4% to 15.6 US cents
• Ongoing $500 million share buyback programme
• Net debt up 9% from late December to $3.01 billion

Guidance:

• Reduced annual adjusted revenue growth forecast to around 4% from a previous 6%
• Continues to expect growth in annual trading profit of around 8%

Chief executive Deepak Nath said:

"Despite slower-than-expected revenue growth, we delivered a strong first-half profit performance primarily driven by a step-up in forecast efficiency savings.

“Orthopaedics is not where we want it to be, but we expect growth to accelerate as we fill portfolio gaps, starting later this year and continuing into 2027. We have already made progress on Orthopaedics trading profit margin ahead of these launches. We remain focused on capital allocation and opportunities to enhance shareholder returns."

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ii round-up:

Medical device maker Smith & Nephew (LSE:SN.) today reduced full-year sales expectations while maintaining hopes for growth in profit given an ongoing focus on increased efficiency.

Lower-than-expected US demand for hip and knee replacements as well as hindered sales of skin substitutes at its wound care business fed into second-quarter revenues of $1.59 billion (£1.19 billion). Analysts had expected $1.63 billion.  

The Watford headquartered company now expects adjusted revenue growth of around 4% in 2026, down from a previous 6%. Annual trading profit is still expected to grow by around 8%.

Shares in the FTSE 100 company fell 6% in UK trading having come into these latest results down around 1% so far in 2026. Fellow orthopaedics maker Zimmer Biomet Holdings Inc (NYSE:ZBH) is up by 8% in that time, while the FTSE 100 is up around 9% year-to-date.

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Smith & Nephew operates across the three divisions of Orthopaedics, Sports Medicine and ENT (Ear, Nose and Throat), providing products to repair or remove soft tissue, as well as Advanced Wound care.

Second-quarter Orthopaedic sales fell to $614 million from $615 million in Q2 2025. Analysts had expected $646 million. Management highlighted temporary headwinds in US hip implants and ongoing challenges in US knee implants ahead of new product introductions.

Sports Medicine and ENT sales for the quarter rose 10% from a year ago to $527 million. Within that, joint repair sales rose 12% to $293 million, with those for arthroscopic enabling technologies up 11% to $178 million.

Wound care sales slipped 1% to $460 million, with Bioactive sales falling 13% to $144 million.

The group’s ‘RISE’ efficiency plan helped generate a trading profit margin of 18.3%, up from 17.7% in H1 2025.

An interim dividend up 4% from a year ago to 15.6 US cents is payable to eligible shareholders on 6 November. A $500 million share buyback potentially running until May 2027 has $284 million remaining.

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

ii view:

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

Strategic pushes under the relatively new RISE strategy, which in early 2026 replaced a 12-point plan, include ongoing product innovation, reaching more patients by taking market share and executing efficiently.

For investors, a move towards cementless knee replacements and hindered deployment of hip devices impacted sales this latest quarter. US trade tariffs have previously affected business, with Trump's plans a possible issue going forward. A forecast price/earnings (PE) ratio in line with the three-year average may suggest the shares are not obviously cheap, while rivals such as Zimmer and DePuy Synthes owner Johnson & Johnson (NYSE:JNJ) are not standing still.

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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 made just last year. Bolt-on acquisitions continue to be made, with the integration of ‘Integrity Orthopaedics’ made at the start of the year highlighted as progressing well. Diversity in both products and geographical regions exists, while the payment of a dividend since 1937 now leaves the shares on forecast yield of around 1.6%.

On balance, and despite continuing risks, exposure to ageing global populations will likely see investors continue to consider this UK headquartered medical devices maker. However, they may not be so understanding if improvements aren't reported in future updates. 

Positives:

• Product and geographical diversification
• Exposure to favourable demographics

Negatives:

• Subject to US trade tariffs
• Competition not standing still

The average rating of stock market analysts:

Strong hold