Smith & Nephew maintains profit guidance as H1 trading margin improves

Smith & Nephew plc (LON:SN) has announced its Second Quarter and First Half 2026 Results 

Strong H1 profit growth, on-track to meet trading profit, free cash flow and ROIC guidance despite softer revenue growth

(Financial Performance – H1 and Q2 2026 results unless otherwise stated, growth % and commentary are given on an underlying basis as defined on page 9 and are for the half and quarter ended 27 June 2026. In Q2 2026, the currency tailwind on reported growth versus underlying growth primarily reflected strength of the Euro and Australian dollar.) 

Q2 Highlights

·      Q2 revenue was $1,597 million, with underlying revenue growth of 1.6%, and reported revenue growth of 2.8% including a 120bps FX tailwind

·      Q2 performance driven by continued strength in Sports Medicine offset by softness in US Orthopaedics and Advanced Wound Bioactives

·      Multiple product platforms delivering double-digit or higher growth including CATALYSTEM^◊, AETOS^◊, Q-FIX^◊, REGENETEN^◊, CARTIHEAL^◊ AGILI-C^◊, FASTSEAL^◊ and LEAF^◊

·      High cadence of new product launches, expansions and approvals including TESSA^◊ Spatial Surgery System

H1 Highlights

·      H1 revenue was $3,097 million, with underlying revenue growth of 2.3%. Reported growth of 4.6% was after 230bps FX tailwind. Growth reflected one fewer trading day versus the prior year, with underlying revenue growth of 3.1% on an average daily sales (ADS) basis

·      Strong trading profit growth driven by a step-up in forecast efficiency savings, while tariff refunds fully offset the forecast tariff headwind. Trading profit was $566 million, up 8.1% on a reported basis including 90bps dilution from the acquisition of Integrity Orthopaedics. Trading profit margin up 60bps to 18.3%. Operating profit increased 4.3% on a reported basis to $448 million

·      Adjusted earnings per share (‘EPSA’) up 11.0% to 47.7¢ and basic earnings per share (‘EPS’) up 6.2% to 35.6¢

·      Continued strong cash generation. H1 free cash flow $13 million lower than H1 2025 includes a $51 million increase in capex relating largely to the construction of our new UK Wound factory and IT upgrades. This does not repeat in H2 when cash generation is expected to be stronger versus H2 2025

·      Building on our strong cash generation and balance sheet, a $500 million share buyback was announced in May, with $216 million settled as at 3 August. Adjusted net debt/EBITDA leverage ratio at H1 2026 was 1.8x

·      Interim dividend increased by 4.0% to 15.6¢ per share

Anticipated growth in full year revenue reduced from around 6% to around 4%; trading profit, free cash flow and adjusted ROIC guidance unchanged

·      We expect second half revenue growth to be in the range of 5.0% to 5.5%, a step up on the first half, driven by multiple factors, including:

o  In Sports Medicine, continued momentum across segments including strong growth in REGENETEN and FASTSEAL

o  In Advanced Wound Management, stabilisation in US skin substitutes, a return to growth in SANTYL^◊, expansion of the European launch of ALLEVYN^◊ COMPLETE CARE, the launch of next-generation LEAF, and investment behind PICO^◊

o  In Orthopaedics, improving trajectory in US Knee Implants driven by LEGION^◊ MS and the launch of the cementless version of LANDMARK^◊, as well as a return to growth in US Hip Implants following increased CATALYSTEM set deployment

o  An extra trading day in the fourth quarter

·      Despite the revised full year revenue guidance, we continue to expect around 8% trading profit growth excluding acquisitions (around $1.3 billion post-acquisition of Integrity Orthopaedics), around $800 million free cash flow, and more than 10% adjusted ROIC (excluding impact of Integrity Orthopaedics)

o  We now anticipate the year-on-year impact of tariffs will be broadly neutral to trading profit net of refunds

o  The headwind from skin substitutes is expected to be towards the upper end of the previously guided $20 to $40 million range

o  We expect to be able to offset the impact on trading profit of lower revenue growth through an additional $50 million in efficiency savings identified for 2026, taking total savings to around $200 million for the year

Deepak Nath, Chief Executive Officer, said:

“The Group navigated some challenges in the second-quarter. Sports Medicine continued to perform strongly, but Orthopaedics was impacted by temporary headwinds in US Hip Implants and ongoing challenges in US Knee Implants ahead of new product introductions. We also saw softer-than-expected performance from SANTYL within Bioactives, although we expect the product to return to growth in the third quarter.

“The changes implemented through our 12-Point Plan have made the Group more resilient and better able to respond to such challenges. As a result, despite slower-than-expected revenue growth, we delivered a strong first-half profit performance primarily driven by a step-up in forecast efficiency savings.

“Importantly, that improved resilience gives us confidence in our ability to deliver our full-year guidance for trading profit, free cash flow and return on invested capital. The updated revenue guidance reflects both the soft first half and our expectation for a step-up in the second half. Orthopaedics is not where we want it to be, but we expect growth to accelerate as we fill portfolio gaps, starting later this year and continuing into 2027. We have already made progress on Orthopaedics trading profit margin ahead of these launches. We remain focused on capital allocation and opportunities to enhance shareholder returns.”

Second quarter 2026 trading update

Our second quarter revenue was $1,597 million (Q2 2025: $1,553 million), reflecting underlying revenue growth of 1.6%, which was lower than we anticipated. Reported revenue growth was 2.8%, including 120bps tailwind from foreign exchange. The second quarter of 2026 comprised 63 trading days, in line with the same period of 2025.

Sports Medicine & ENT

Our Sports Medicine business unit continued to deliver robust revenue growth, building on the continued momentum in the franchise, driven by our differentiated portfolio, including new product launches and recent acquisitions.

Sports Medicine Joint Repair growth was led by shoulder repair, including double-digit growth from our REGENETEN Bioinductive Implant and the Q-FIX KNOTLESS All-Suture Anchor. The CARTIHEAL AGILI-C Cartilage Repair Implant, acquired in 2024, delivered strong growth as we continue to expand availability, including completing first cases in Europe and Australia. The integration of Integrity Orthopaedics, and its Tendon Seam^◊ technology for rotator cuff repair, acquired at the start of the year, is progressing well. 

Arthroscopic Enabling Technologies performance was driven by double-digit growth both from our WEREWOLF^◊ FASTSEAL 6.0 Hemostasis Wand and our service business. We again saw strong demand in China where the Volume-Based Procurement (VBP) process has been delayed and which we now expect to be implemented in the second half of 2026.

ENT underlying revenue decline was as expected and reflected continued actions in China to reduce channel inventory ahead of the expected VBP process in this segment. This offset the good performance across all other regions, including double-digit growth in Other Established Markets and Emerging Markets and from the ARIS^◊ COBLATION^◊ Turbinate Reduction Wand and HALO^◊ Wand for tonsillectomy and adenoidectomy.

Advanced Wound Management

Advanced Wound Management performance reflected continued headwinds in Advanced Wound Bioactives and strong comparative periods in both Advanced Wound Bioactives and Advanced Wound Devices.

Advanced Wound Care growth was driven by our foam portfolio led by the recently launched ALLEVYN COMPLETE CARE. The US launch is going well and during the quarter we initiated the European launch, with good early traction in Germany. We also delivered double-digit growth from ALLEVYN AG, our absorbent antimicrobial foam dressing.

Advanced Wound Bioactives revenue decline was driven by the changes to reimbursement rules for skin substitutes which took effect at the start of 2026 as well as by a soft quarter for SANTYL following a strong Q1. In skin substitutes, while there was a sequential improvement from the first quarter, the impact of the reimbursement reset continued to drive a decline in both volumes and pricing in non-surgical settings, particularly in mobile where we have limited exposure. Despite these near-term dynamics, we continue to believe in the long-term fundamentals of the skin substitute segment beyond this transition year, and remain well-positioned as market conditions normalise.

Advanced Wound Devices performance included double-digit growth from the LEAF Patient Monitoring System, a key component of our pressure injury prevention strategy. Our PICO single-use Negative Pressure Wound Therapy (NPWT) and RENASYS^◊ traditional NPWT both performed strongly in Emerging Markets, as we continue to expand geographically. PICO sales in Other Established Markets were impacted by doctor strikes in Spain in the surgical sector and the timing of tenders. In the US, sales of RENASYS continue to be soft in the acute care channel, while performance in the post-acute channel remained strong.

Orthopaedics

Our Orthopaedics business unit revenue declined by -1.0% on an underlying basis (reported decline -0.2%) in the second quarter, reflecting a number of factors in the US including the ongoing issues in Knee Implants ahead of new product launches and temporary headwinds in Hips Implants. Additionally, US Hip Implants, Knee Implants outside the US and Other Reconstruction all faced strong comparative periods.

US Knee Implants revenue declined -7.2% on both an underlying and reported basis, a modest improvement on Q1, as expected. As with recent quarters, performance reflected the continuing and deliberate portfolio and capital discipline, combined with an ongoing market shift towards cementless, which continues to influence performance in the near term. The sequential improvement was driven by strong uptake of LEGION MS and continued double-digit growth from LEGION CONCELOC, our cementless offering. LEGION MS now represents almost 20% of our LEGION mix and is enhancing the competitiveness of our installed base. Looking ahead, we continue to expect improvement through the year, driven by increased LEGION MS set deployments in the second half. This will remain the main contributor to momentum ahead of launch of our new kinematic LANDMARK Knee System, with the cementless version expected in the third quarter of 2026.

Following four consecutive quarters of above market growth, US Hip Implants revenue declined -1.5% on both an underlying and reported basis. The CATALYSTEM Primary Hip System is still growing strongly, although Q2 was impacted by some delay in set deployments and an increasing proportion of retentions versus competitive conversions. We expect the segment to return to growth for the remainder of the year driven by increased CATALYSTEM set deployment, and as CATALYSTEM moves into its third-year post-launch, we anticipate it continuing to drive a healthy growth rate in US Hip Implants, albeit at a more moderate level than during the early launch phase.

Outside the US, Knee Implants declined -1.4% (reported decline -0.3%) reflecting the impact of a large tender order in the Middle East in the prior year which did not repeat. Hip Implants delivered underlying revenue growth of 3.0% (reported growth 5.2%) outside the US, led by the POLAR3^◊ Total Hip System, as well as strong performance in Japan where we have recently launched CATALYSTEM.

Other Reconstruction underlying revenue growth reflected the comparator period as well as contract mix. We delivered double digit growth in CORI^◊ Surgical System installations globally.

Trauma & Extremities performance was driven by the EVOS^◊ Plating System and IM Nails as well as strong double-digit growth from the recently launched AETOS Shoulder System. 

Performance by region

(i)             Other Established Markets are Europe, Japan, Australia, Canada and New Zealand

The US revenue decline reflected performance in Orthopaedics and Advanced Wound Bioactives. Other Established Markets performance was led by growth from Canada and Australia & New Zealand, continuing the good momentum seen in the first quarter. Emerging Markets performance included double-digit growth from China. We continue to expect China to be broadly neutral to growth for the full year.