Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Smith & Nephew PLC (SNN, Financial) reported a solid set of numbers with 5.6% revenue growth in the quarter.
- The Sports Medicine business continued its good momentum across categories and regions.
- Advanced Wound Management returned to growth with improvements in both bioactives and AWC.
- Orthopedics saw strong performance in Trauma & Extremities, Robotics, and ex-US Recon.
- Profitability improved with a 140 basis points expansion, translating into double-digit profit growth and 60% trading cash conversion.
Negative Points
- US Recon remains behind for the quarter, although there are signs of progress.
- Foreign exchange presented a 100 basis points headwind on reported revenue growth.
- The company faces a significant margin headwind from China VBP pricing in the second half.
- There is ongoing variability in quarter-to-quarter growth for products like SANTYL.
- The company is still addressing challenges around execution and culture, which have historically held back its full potential.
Q & A Highlights
Q: How much conservatism is baked into the guidance for full year margin? Could there be a meaningful upside to that 18%?
A: The guidance is the guidance, and there is no conservatism built in. We are comfortable reiterating our 18% plus guidance for the full year, considering the full impact of China VBP in the second half. (John Rogers (Trades, Portfolio), CFO)
Q: How does the record quarter of CORI placements translate into utilization? Do you have any targets for placements for the full year?
A: We haven't issued quarterly targets, but placements are in the double-digit range in terms of growth period-over-period. Utilization is also improving, and we will provide more details at year-end. (Deepak Nath, CEO)
Q: Could the additional focus on returns lead you to reassess whether some low-return businesses remain part of the portfolio?
A: We are focused on improving returns across the board, particularly in Orthopedics. We are not signaling any divestitures but are committed to allocating capital where we can get the highest incremental returns. (John Rogers (Trades, Portfolio), CFO)
Q: Can you provide more detail on the additional $125 million to $175 million of cost savings identified?
A: The savings will come from lean manufacturing, sales structures, and indirect procurement. These initiatives generally do not require significant additional restructuring charges. (John Rogers (Trades, Portfolio), CFO)
Q: How far is Smith & Nephew from having its fair share of robotics procedures in the US?
A: We are already placing CORI above our share position and seeing healthy utilization levels. The ASC market is a significant growth driver, and we are well-positioned with CORI's flexible and cost-effective platform. (Deepak Nath, CEO)
Q: What are the expectations for restructuring charges in 2025?
A: We expect around $10 million to $15 million in restructuring charges in 2025, with no significant additional restructuring costs anticipated. (John Rogers (Trades, Portfolio), CFO)
Q: Are there any initiatives in the 12-Point Plan that are behind schedule?
A: Some lead indicators, like deal activity and set turns, are progressing well. We are confident in the second half recovery for US Recon based on these metrics. (Deepak Nath, CEO)
Q: What is the commercialization strategy for AGILI-C, and has reimbursement been established?
A: The initial cohort of reps has been trained, and early experience is positive. Reimbursement will take time to establish, but we have a good team working on it. (Deepak Nath, CEO)
Q: What would you consider a success for US Hip and Knee performance in the second half of the year?
A: Success would be getting to near-market levels in the second half and slightly above market as we exit 2025. (Deepak Nath, CEO)
Q: Why is there not more sales growth leverage and efficiency leverage in the second half of the year?
A: The timing of price increases is weighted more towards the first half, and various efficiency initiatives are at different levels of maturity, resulting in a similar net benefit in both halves. (John Rogers (Trades, Portfolio), CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
