Smith+Nephew profit margins disappoint after revenue beat

British medical products maker Smith+Nephew kept its annual profit outlook unchanged on Thursday after first-half trading profit and margins missed market expectations on supply chain snags and high raw material and labour costs.

Shares in the company, which makes orthopaedic implants and prosthetics, wound dressings, and other surgical technologies, fell 1% in early trade after weaker margins overshadowed better-than-expected revenue and a higher sales outlook.

The company has manufacturing facilities across the globe, and has been dealing with supply disruptions since COVID-related lockdowns and the onset of the Ukraine-Russia conflict led to global shortages of raw materials and components.

“What we continue to see is certain categories of certain components are quite challenged in terms of regularity of supply and in terms of the interruptions that we face, and those are a bit harder to forecast,” CEO Deepak Nath told Reuters.

The group said trading profit fell 5% to $417 million in the six months to July 1, versus $442 million predicted in a company-compiled list of analysts’ forecasts.

Its half-year profit margin came in at 15.3% versus 16.9% a year before. It left its margin forecast for the full year unchanged at 17.5%.

Revenue in the second quarter and half-year were ahead of analysts’ estimates, and the group raised its full-year outlook for underlying revenue growth to 6%-7% from 5%-6% previously, citing more elective surgeries and strength in sports medicine.

Nath said supply chain issues have been better year-over-year, though they persist.

“In Orthopaedics, disruptions delayed the completion and deployment of some instrument sets, and we saw some component shortages in Sports Medicine,” said the company in a statement

Smith+Nephew also announced on Thursday that finance chief Anne-Francoise Nesmes will step down from her role in the second quarter of next year.

“The announcement on the CFO change only three years after she joined is unlikely to help concerns on the margin outlook, although the fact that she should be around until after the full-year results have reported might be some comfort,” JPMorgan (NYSE:JPM) wrote in a note.