Smith & Nephew(SNN) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Underlying revenue growth for Q3 2025 was 5%, consistent with H1 run rate, with reported revenue at $1.5 billion, reflecting a 6.3% increase due to a 130 basis point tailwind from foreign exchange [2][5] - Free cash flow guidance raised from over $600 million to around $750 million, driven by improved working capital discipline and operational efficiencies [3][11] Business Line Data and Key Metrics Changes - Orthopedics grew 4.1% on an underlying basis, with strong performance in hips in the US offsetting softer knee sales [5][6] - Trauma and extremities grew 7.5%, with notable contributions from the Evos plating system and Atos shoulder [7] - Advanced Wound Management grew 6%, with advanced wound care growing 1.1% and Bioactives up 12.2% [8][9] Market Data and Key Metrics Changes - US market grew 5.5%, while other established markets grew 3.9% and emerging markets grew 5.4% [5] - Excluding China, underlying revenue growth was 6.4%, with joint repair growth at 13% [3][8] Company Strategy and Development Direction - Innovation remains central to growth, with over half of growth coming from products launched in the last five years [12] - The company is focused on operational improvements and cash efficiency, with plans to present a new strategy at upcoming capital markets events [15][16] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in meeting revenue guidance for Q4, citing a strong sales funnel and new customer integrations [20][30] - The company anticipates continued margin expansion beyond 2025, despite headwinds from tariffs and reimbursement changes [11][41] Other Important Information - The company launched several new products, including the Alevi Complete Care dressing and the Legion medial stabilized knee, which are expected to drive future growth [12][14] - Management acknowledged ongoing challenges in the US knee market but remains optimistic about future performance improvements [15][27] Q&A Session Summary Question: Concerns about revenue guidance and margin expectations - Management remains confident in Q4 revenue guidance, supported by new product launches and customer integrations, and expects to maintain margin guidance in the 19-20% range [20][30] Question: Impact of portfolio rationalization on US knees - Management acknowledged the gap between their performance and market growth in US knees, attributing it to ongoing portfolio rationalization, but expressed optimism for future improvements [27][28] Question: Key factors affecting margins in 2026 - Management outlined several headwinds for 2026, including tariffs and pricing pressures, but remains confident in achieving margin expansion through operational efficiencies [41][42] Question: Future of the China business - The company is committed to building a sustainable business in China and will evaluate product lines for investment based on profitability [42] Question: Expectations for Q4 performance in other recon - Management expects a rebound in other recon performance in Q4, driven by strong placements and utilization rates [75]