Technology firm Smiths Group Plc. (SMIN.L) Friday said its expectations for the year remain in line with the previous outlook, albeit with a slightly different mix by division. In an interim management statement for the nine months to May 4, the company said it grew underlying revenue across all divisions and underlying headline operating profit was also ahead of the same period last year.
Headline operating margin improved in all divisions except Smiths Medical as it invested more in sales and marketing in higher growth markets and incurred additional expense from the US medical device tax.
The company had said in March that it sees tough trading conditions in the second half of the year due to the US medical device tax, slower demand in some parts of John Crane division and the impact of further government budget cuts. However, despite these challenges, the firm believed that there are significant opportunities to generate value for shareholders over the medium term.
Smiths said today that John Crane saw sustained underlying revenue growth in the first nine months, with flat revenues to first-fit OEM customers and continued growth in the aftermarket. Headline operating margin rose due to productivity gains and favourable price/mix.
The order book for the business is ahead of last year with a positive book-to-bill ratio. Consequently, the outlook has improved and the business now expects second half sales to be ahead of the same period last year. Headline operating margins are expected to benefit from on-going productivity efforts and better mix and pricing.
Smiths Medical experienced underlying revenue growth from the first half into the third quarter, driven by single-use consumables and hardware sales. Nearly half of the growth came from emerging markets, reflecting increased investment in sales and marketing in these regions.
As expected, headline operating profit in the first nine months for the division lags behind the prior year due to the additional investment in emerging markets made over the past year. Additionally, the introduction of the US medical device tax in January also affected profitability.
For full year, Smiths Medical expects revenue growth to continue, driven by emerging markets and new products. Operating margins will reduce as a result of the device tax and increased investment, although this will be partially offset through operational improvements.
Smiths Detection increased both underlying revenue and headline operating profit in the first nine months. Despite increase from last year, headline operating margin has been affected by changes in contract mix. This was due to a shift in the expected timing of some contracts, reflecting pressures on government spend and delays to airport infrastructure programs.
These contract delays are expected to result in second half sales below the strong level seen last year. Headline operating margins for the full year are expected to be at a similar level to last year.
Smiths Interconnect delivered underlying growth in revenue and headline operating margin compared to a weak prior year. Revenue rose across all business units of Connectors, Microwave and Power, although the power markets remain relatively weak.
The division's outlook for the final quarter remains challenging, due to the strong comparator period and the uncertainty in several end markets, particularly with the weakness in Europe and the risk of US defence budget cuts.
Flex-Tek made good progress during the period, growing underlying revenue through a strong performance in aerospace and US residential construction. Headline operating profit and margins improved as a result of higher volumes. The outlook for the year remains positive driven by the aerospace order book and US housing, despite the tough comparator period.
The stock is up 0.5 percent in early market trading at 1,342 pence.
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