Smith & Nephew looks to $160m cost-cutting as 2017 earnings top estimates

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Perhaps seeking to stave off a hedge fund’s carveout push, Smith & Nephew (NYSE:SNN) today revealed a cost-cutting program it hopes will pare $160 million from its annual operating budget and posted 2017 results that beat earnings expectations.

Last year Elliott Management took out a stake in the British orthopedic and wound care firm, leading to speculation that Elliott founder Paul Singer would push to break the company apart. This morning CEO Olivier Bohuon, who’s slated to step down at the end of the year, told analysts that a breakup is not in the cards.

“We are not newborn babies, we have worked on pipeline management for some time. If we have this set-up, then that’s because we are happy with it,” Bohuon said, according to the Telegraph.

Smith & Nephew logged profits of $1.05 billion, or 87.8¢ per share, on sales of $4.77 billion last year, for bottom-line growth of 2.7% on sales growth of 2.1%. Adjusted to exclude one-time items, earnings per share were 94.5¢, well ahead of the consensus forecast of 88¢. Analysts were also looking for sales of $4.78 billion.

The company said its new, $240 million Accelerating Performance & Execution program, dubbed Apex, aiming to deliver the $160 million-a-year savings by 2022. The plan is to revise its physical footprint around manufacturing and service hubs and refine the supply chain; Smith & Nephew also hopes to cut its general & administrative expenses and streamline its commercial operation.

“We delivered on our promises to improve the top and bottom line in 2017. Our knee implants franchise delivered a standout performance and we returned to double-digit growth in the emerging markets. Our healthy balance sheet, good cash generation and increased dividend demonstrate the robust foundations underpinning our business,” Bohuon said in prepared remarks. “In 2018 I expect Smith & Nephew to build on 2017 by delivering another year of improved performance driven by our strong product portfolio and pipeline of innovative products.

“Looking further ahead, our greater focus on commercial execution gives us confidence we will outgrow our markets and the new APEX programme supports our expectation of improved trading profit margin,” he said.

Smith & Nephew said it expects to improve its profit margin by 30 to 70 basis points on sales growth of 7% to 8%.

In London, SN shares were down -2.3% to £12.18 apiece today in mid-afternoon trading. In New York the stock was off some -0.6% at $34.49 per share in pre-market activity, having closed down -1.0% at $34.68 yesterday.

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