Smith & Nephew tops trading profit forecasts in H1 on cost cuts, U.S. recovery

Smith & Nephew reported robust first-half results, with trading profit rising 11.2% to $523 million, exceeding analyst expectations, driven by cost reductions and a rebound in its U.S. operations. Revenue increased to $2.96 billion and operating profit jumped 30.6%, improving the trading profit margin to 17.7%. The medical products maker also announced a new $500 million share buyback for the second half of 2025, reflecting strong cash generation, and reaffirmed its full-year 2025 guidance, signaling confidence despite weaker demand from China.

Analysis

Smith & Nephew (LON:SN) delivered a strong first-half performance, with trading profit increasing 11.2% to $523 million, surpassing analyst expectations of $496 million. This was driven by successful cost reduction measures under its '12-Point Plan' and a rebound in its U.S. operations, which were robust enough to offset noted weakness in the Chinese market. Profitability saw a significant improvement, as the trading profit margin expanded 100 basis points to 17.7% and operating profit grew 30.6% year-over-year. Revenue growth accelerated in the second quarter to 6.7% on an underlying basis, further boosted by a 110 basis point tailwind from foreign exchange. Management's confidence is underscored by the reaffirmation of full-year 2025 guidance and the announcement of a new $500 million share buyback program, which will be executed in the second half of 2025, signaling a positive outlook on future cash generation and balance sheet strength.

Key Decisions for Investors

• The combination of a significant earnings beat, margin expansion to 17.7%, and reaffirmed 2025 guidance supports a bullish thesis on the company's operational execution.
• Consider the new $500 million share buyback as a key indicator of management's long-term confidence in cash flow, though note its execution is deferred until the second half of 2025.
• Investors should closely monitor regional sales data in upcoming reports, particularly for any signs of stabilization or further weakness in the Chinese market, which remains a notable headwind.