Smith & Nephew Lifts Dividend 50% With Interim Payout
Stockholders will receive an interim dividend of 9.9 cents a share Oct. 30, the London-based company said in a statement today. Based on the new policy, shareholder could get 16.2 cents a share for the final 2012 dividend, Chief Financial Officer Adrian Hennah said on a conference call with reporters today.
The dividend was a “positive surprise” and could put Smith & Nephew among the more high-yielding medical technology companies in Europe, Ingeborg Oie, an analyst with Jefferies International Ltd. in London, said in a note to investors today. The new policy won’t prevent the company from making acquisitions, Chief Executive Officer Olivier Bohuon said during a call with analysts.
“We have a number of exciting opportunities under review and we are working in a very disciplined manner to ensure we move these forward,” he said.
The company would borrow money to make a big acquisition if the opportunity arises, Hennah said. The company has said it wants to invest in wound care, minimally-invasive surgery and emerging markets such as Brazil, Russia, India and China.
Smith & Nephew rose 2.4 percent to 675 pence at the close of trading in London, the biggest jump since May 3.
Under the so-called progressive dividend policy, Smith & Nephew will increase the payout over time “broadly based on the group’s underlying growth in earnings, while taking into account capital requirements and cash flows,” the company said.
Second-quarter trading profit, which excludes some costs, fell to $234 million from $236 million a year earlier. Earnings were in line with the average analyst estimate compiled by Bloomberg, and the company left its forecast for 2012 unchanged.
Earnings per share of 18.1 cents were unchanged from the year-ago period, and were in line with the 18-cent average of 12 analyst estimates.
The medical device manufacturer is cutting jobs and investing more in emerging markets and research and development as shrinking economies in Europe lead to a drop in sales. The company announced plans in February to reduce its 11,000-person workforce by 7 percent over three years to help save $150 million a year.
Revenue fell 4.5 percent to $1.03 billion, compared with the average estimate of $1.04 billion from 13 analysts. Because Smith & Nephew reports earnings in dollars, the currency’s gains in the past year have reduced the company’s revenue from business outside the U.S.
Knee-replacement sales increased 3 percent during the quarter while hip-replacement revenue fell 5 percent, which the company attributed to negative sentiment on metal-metal implants. Sales from sports-medicine joint repair rose 10 percent.
Sales at Advanced Surgical Devices, which includes orthopedics and endoscopy, declined to $774 million from $819 million a year earlier. Advanced Wound Management slipped to $255 million from $258 million.
Smith & Nephew still expects revenue from the sports medicine and advanced wound-management units to expand more quickly than the market, while orthopedic reconstruction will probably grow at close to the industry rate and orthopedic- trauma revenue gains will be slower.
Pricing pressure in orthopedics “is becoming less of an issue as the market has adjusted to this new norm,” Jefferies’s Oie said.
While Smith & Nephew saw a pick-up in the U.S. during the quarter, much like its bigger rivals J&J (JNJ) and Biomet Inc., Bohuon said he was reluctant to call it a trend. He said pricing pressure was stable. The European market may get tougher in the second half of the year, Hennah said. If exchange rates remain the same, total sales and profit will likely be reduced about 3 percent, Hennah said.
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