Smith & Nephew on Thursday raised its full-year revenue outlook again after another quarter of double-digit growth at its sports medicine joint repair business.
Rising demand for the joint repair devices was supported by a slight uptick in sales of arthroscopic enabling technologies, a unit that posted its first quarter of growth in three years.
The results come the day before Roland Diggelmann, formerly of Roche, is due to take over as CEO from Namal Nawana, who reportedly parted company with Smith & Nephew over a pay dispute.
Smith & Nephew’s performance has tracked ahead of its own expectations throughout 2019, leading it to raise its revenue outlook in each of the first three quarters. Management now expects full-year growth of 3.5% to 4.5%, up half a percentage point on its prior outlook.
The more bullish forecast follows a quarter in which the growth drivers Smith & Nephew has relied on all year continued to catch fire. Sales of sports medicine joint repair increased 12.2%, its biggest rise yet in a year in which it has grown by at least 11% each quarter. Smith & Nephew attributed the growth to demand for knee and shoulder repair products in all territories.
Smith & Nephew also benefited from the elimination of a long-standing headwind. The arthroscopic enabling technology business grew 0.8%, ending a streak of 11 quarters in which it contracted. The unit last grew in the third quarter of 2016. Graham Baker, Smith & Nephew’s chief financial officer, told investors the growth was "the result of much improved focus."
Having contracted in the third quarters of 2017 and 2018, the unit’s growth comes off a low base from its historical standards. In July, Namal Nawana, the departing CEO of Smith & Nephew, predicted the unit would return to growth in the second half of the year, reflecting confidence in the impact of new products such as the Werewolf Coblation Flow 90 Wand.
Geographically, ongoing low-single-digit growth in the U.S. and another 16% jump in emerging market sales offset persistent weakness in Australia, Canada, Europe, Japan and New Zealand. Sales in those countries, which Smith & Nephew groups as other established markets, fell 0.3%, although Baker said the company has "seen improvement in Europe," notably in Germany and the U.K.
The big question now is whether incoming CEO Diggelmann can continue the turnaround that took place under Nawana. Smith & Nephew appointed Nawana as CEO in May 2018. After missing his growth target in 2018, Nawana righted the ship in his first full year in charge, delivering a series of expectation-beating quarters.
In response to a question from an analyst, Baker said there have been no resignations from the executive team since Nawana left. Baker added that the executive team already knows Diggelmann, who had already served as a non-executive independent member of the board and was a member of the company's audit committee.