Dive Brief:

• Smith & Nephew's fourth quarter revenue fell just short of analyst expectations as issues that blighted it throughout the year continued to drag on execution.

• Falling sales at the advanced wound bioactives and arthroscopic enabling technologies units again put a damper on Smith & Nephew's results, limiting the company's reported revenue growth to 1%.

• The performance contributed to Smith & Nephew's 2018 underlying revenue growth coming in at 2%, down on the 3% to 4% it forecast at the start of the year.

Dive Insight:

Smith & Nephew's year hit turbulence within months of 2018 getting underway. Having initially targeted underlying growth of up to 4%, the London-based medtech company dialed its expectations down to between 2% and 3% following a lackluster first quarter. Three months ago, Smith & Nephew said it expected the final figure to be in the lower half of that range.

The fourth quarter results were just strong enough for Smith & Nephew to deliver on that forecast. In the end, the company reported underlying full year growth of 2% as the impact of foreign exchange and the ongoing weakness of some important units stymied the business.  

Smith & Nephew has cited "continued softness in resection" as a headwind for its arthroscopy unit since the first half of 2017. The problem recurred in the fourth quarter, causing sales at the franchise to fall 4%. Smith & Nephew is pinning its hopes for recovery on a shoulder repair device that is set to come to market in the first half of 2019.

The advanced wound bioactives unit was the other notable drag on performance. Sales at the unit fell 3% as Smith & Nephew contended with "pressure" on volumes of its Santyl ointment. The unit's weak performance in the first quarter contributed to the early cut to Smith & Nephew's guidance.

With foreign exchange creating a 2% headwind, the units' declining sales were significant enough to cause Smith & Nephew to fall short of the consensus $1.3 billion analyst revenue expectation despite high-single to double-digit growth at some divisions.

Advanced wound devices led the way with 11% and 14% growth on a reported and underlying basis, respectively. The unit is a small part of Smith & Nephew — at $58 million its sales accounted for 4% of total fourth quarter revenue — but it was one of the more consistent growth drivers in 2018. Smith & Nephew is looking to its new negative pressure wound therapy system for further growth.

If that unit and other strong fourth quarter performers, including the larger sports medicine joint repair franchise, continue their momentum into 2019 Smith & Nephew thinks its underlying sales for the year could increase by up to 3.5%. The bottom end of the growth forecast is 2.5%, putting it in line with analyst expectations.

Where Smith & Nephew falls on that guidance range will depend, in part, on whether it can continue to expand in some markets and turn other regions around. In the fourth quarter, Smith & Nephew CEO Namal Nawana said China showed strong growth in the teens, in contrast to Europe, which he called "an area of weakness for some time," contributing to a 3% drop in sales in established markets outside the U.S.

In the longer term, Smith & Nephew plans to drive growth by striking "deals to get access to adjacent markets," Nawana said. Smith & Nephew just completed a $105 million deal to acquire Ceterix Orthopaedics but Nawana thinks the company has "the capacity and ability to do more."