Smith & Nephew SNATS NYSE: SNN reported second-quarter underlying revenue growth of 1.6%, below management’s expectations, as continued strength in Sports Medicine and ENT was offset by weakness in U.S. Orthopaedics and Advanced Wound Bioactives.
Chief Executive Officer Deepak Nath said quarterly revenue performance prompted the medical technology company to reduce its full-year underlying revenue growth outlook to about 4% for 2026. However, the company maintained its forecasts for trading profit, free cash flow and return on invested capital, citing stronger-than-expected efficiency savings and tariff refunds.
Quarterly revenue totaled $1.6 billion, up 2.8% on a reported basis, including a 120-basis-point foreign-exchange benefit. U.S. revenue declined 1.3%, while other established markets grew 1.7% and emerging markets increased 10.6%, according to CFO John Rogers.
Sports strength offset by U.S. Orthopaedics and wound pressure
Sports Medicine and ENT grew 8.6% in the quarter, supported by broad-based demand across regions and product categories. Joint Repair posted double-digit growth, aided by Q-FIX KNOTLESS and REGENETEN, while FASTSEAL and services were key contributors in the company’s AE/TE business. Nath said REGENETEN grew about 20% in the first half.
Advanced Wound Management revenue declined 2.1%. Advanced Wound Care increased 3.7%, led by U.S. ALLEVYN sales and emerging-market growth. The company said its ALLEVYN COMPLETE CARE launch showed encouraging early momentum in the U.S. and was launched in Europe during the quarter.
Bioactives revenue declined 12.7%, reflecting U.S. reimbursement changes for skin substitutes and a softer quarter for SANTYL. Rogers said SANTYL benefited from elevated distributor demand in the first quarter that did not recur in the second quarter. A payer’s introduction of prior authorization for certain SANTYL doses also created prescription-processing friction, though management said underlying demand remained healthy and expected the product to return to growth in the second half.
Management expects the trading-profit impact from skin substitute reimbursement changes to be toward the upper end of its prior $20 million to $40 million range. The company said hospitals drove sequential improvement in the skin-substitutes business, though non-surgical settings continued to face volume and pricing pressure.
Orthopaedics weakness tied largely to company-specific issues
Orthopaedics declined 1% on an underlying basis. U.S. knees remained weak, which management attributed primarily to a portfolio gap in cementless implants and the company’s deliberate capital discipline. Nath told analysts that broader market softness was a factor but “not the biggest factor,” describing the principal issues as company-specific.
Smith & Nephew said uptake of LEGION MS and double-digit growth in LEGION CONCELOC supported sequential improvement in U.S. knees. LEGION MS represented almost 20% of the LEGION mix in the second quarter, compared with 15% in the first quarter. The company expects the late-third-quarter launch of the porous version of LANDMARK to support business retention, followed by a cemented LANDMARK launch planned for the end of the second quarter of 2027.
U.S. hips were affected by a tough comparison and slower-than-expected deployment of CATALYSTEM instrument sets. Nath said deployment was complicated by differing instrument requirements for surgeons converting from legacy or competitor systems. Management expects hip growth to resume as deployments increase during the second half, though it said CATALYSTEM growth should eventually normalize as the product matures.
Other recon revenue grew 0.8%, with double-digit growth in CORI robotic-system deployments globally. The company said utilization and penetration also increased, and it expects recon growth to accelerate in the second half with demand across ambulatory surgery centers and teaching institutions.
Profit growth supported by savings and tariff refunds
For the first half, revenue was $3.1 billion, up 2.3% on an underlying basis. Trading profit rose $43 million to $566 million, while trading margin expanded 60 basis points to 18.3%. Excluding the impact of the Integrity Orthopaedics acquisition, trading profit increased 9%.
Underlying gross margin increased 60 basis points to 71.1%, supported by manufacturing and procurement savings that more than offset inflation and inventory revaluation. The company received tariff refunds that fully offset its previously forecast tariff headwind for 2026.
- First-half efficiency savings totaled about $133 million.
- Smith & Nephew increased its 2026 savings forecast to about $200 million from about $150 million.
- The company said it had achieved $330 million of cumulative savings since launching its programs, reaching the lower end of its $325 million to $375 million target more than a year ahead of schedule.
- Free cash flow was $231 million in the first half, and management maintained its full-year target of about $800 million.
Net debt rose to $3 billion, including the effects of the Integrity Orthopaedics acquisition, a higher dividend and the company’s $500 million share buyback. As of Aug. 3, Smith & Nephew had completed $260 million of the repurchase program.
Second-half outlook calls for acceleration
Management forecast second-half underlying revenue growth of 5% to 5.5%, with a stronger fourth quarter than third quarter. Rogers said third-quarter growth is expected to resemble the first quarter’s pace, while fourth-quarter growth should rise to roughly 6% to 7% in absolute terms, aided by easier comparisons in skin substitutes, PICO investments, the LANDMARK launch and an additional trading day.
The company maintained guidance for approximately 8% reported trading-profit growth excluding mergers and acquisitions, about $1.3 billion in trading profit including Integrity, free cash flow of around $800 million and return on invested capital above 10%.
Nath said Smith & Nephew still views itself as a long-term 6% to 7% growth company, pointing to Orthopaedics launches, Sports Medicine platforms including REGENETEN, CARTIHEAL AGILI-C and TESSA, as well as wound-care opportunities in PICO, LEAF and future negative-pressure wound therapy products.
About Smith & Nephew SNATS (NYSE:SNN)
Smith & Nephew plc is a global medical technology company specializing in the design, development and manufacture of advanced surgical devices, orthopaedic reconstruction implants, trauma and extremities products, sports medicine solutions and wound care therapies. Founded in 1856 in Hull, United Kingdom, the company has grown through both organic innovation and strategic acquisitions to offer a broad portfolio that addresses patient needs across joint replacement, minimally invasive surgery and wound healing.
In its orthopaedics business, Smith & Nephew provides hip and knee replacement systems, modular joint revision implants and biologic solutions for bone repair.
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