Smith & Nephew returns to growth as US hip sales surge

Dive Brief:

Smith & Nephew returned to growth in the first quarter as the resurgence of the U.S. hip business offset continued weakness in other parts of the company.
The pandemic set back the turnaround effort at Smith & Nephew but, like other companies reliant on elective procedures for sales, the first quarter featured signs of a recovery. Smith & Nephew grew sales across all its business units and two of its three geographies.
Management responded to the first quarter results by reiterating guidance for the full year. Smith & Nephew expects underlying revenue growth of 10% to 13% in 2021.

Dive Insight:

As happened earlier in the COVID-19 crisis, the first quarter orthopaedic results were defined by the divergent performance of the knee and hip franchises. Knee sales fell 10.3%, driven by a 14.9% drop in the U.S. compared to the first quarter of 2020, while revenues from hips grew 9.1% globally and 11.5% in the U.S.

CEO Roland Diggelmann attributed the broad trend to the prioritization of surgeries involving hips, which suffer more acute injuries, over more easily deferred knee procedures. The CEO also acknowledged that a gap in Smith & Nephew’s knee portfolio is a problem in the U.S.

“The other side of it is not offering a cementless knee in the U.S. This is a trend that's in the U.S., not so much in the rest of the world,” Diggelmann told investors Thursday on a first-quarter earnings call. “We are working full speed on providing a cementless option towards the second half of this year. What we do expect to see then is of course a pick up of ... the entire franchise.”

Shares in Smith & Nephew rose 6% in early trading in London as all three of its business units posted their first quarters of underlying growth since 2019. The recovery was led by the sports medicine and advanced wound care management units, which grew year over year by 10.4% and 9.3%, respectively, and was helped by a small bump in sales at the larger orthopedics business.

Smith & Nephew benefited from lapping the initial impact COVID-19 in 2020, as was shown most dramatically by the 21.8% jump in emerging market revenues over the pandemic-affected first few months of last year. Sales in the U.S. rose 7.1% as restrictions eased throughout the quarter.

“We definitely see a pent-up demand. What is very difficult to actually assess is how big that pent-up demand is. What we're seeing though, is that typically when restrictions are eased, there is a pretty quick recovery in the markets that can absorb higher volumes,” Diggelmann said.

Ex-U.S. established markets was the only geographic region to suffer a drop in sales, extending its losing streak to a fifth straight quarter. The 1.8% decline reflected growth in Japan and Australia and the strengthening of the U.K. market, offset by a slowdown in mainland Europe as COVID-19 cases rose.

Smith & Nephew’s rebound in Europe may take longer than in the U.S., based on Diggelmann’s observation that the centralized U.K. system was slower to respond to the pent-up demand.