Smith & Nephew plc

Revenue for Q2 was $1.6 billion, up 1.6% underlying and 2.8% reported, with 120 basis points of foreign exchange tailwind. For the half year, revenue was $3.1 billion, up 2.3% underlying and 4.6% reported; on an average daily sales basis, underlying growth was 3.1%. Underlying gross profit was $2.2 billion, with gross margin of 71.1%, up 60 bps year over year. Trading profit increased $43 million to $566 million, with trading margin expanding 60 bps to 18.3%; adjusted EPS grew 11% to $0.477, and basic EPS grew 6.2%. Looking ahead, management now expects full-year underlying revenue growth of around 4% and second-half growth of 5% to 5.5%, while maintaining guidance for around 8% reported trading profit growth excluding M&A, around $1.3 billion of trading profit including Integrity, around $800 million of free cash flow, and ROIC above 10%.

Deepak Nath said the quarter was below expectations mainly because of company-specific issues in U.S. Knees and temporary softness in U.S. Hips, while Sports Medicine & ENT remained a clear strength. He emphasized that the business still has multiple growth drivers across all three segments and that the company’s RISE strategy is advancing through new products, geographic expansion, and operational improvements. His tone was constructive but candid: he acknowledged Orthopaedics is not where they want it to be, but framed the year as one of execution and portfolio strengthening rather than a change in the longer-term growth story.

John Rogers highlighted that gross margin improved to 71.1% in H1, helped by greater-than-expected efficiency savings, which more than offset cost inflation and inventory revaluation headwinds. He said trading profit grew 9% excluding M&A, with $128 million of efficiency savings in H1 and another $70 million expected in H2, taking full-year efficiency savings to around $200 million. He also said tariffs are now expected to be broadly neutral to trading profit net of refunds, cash flow was temporarily pressured by a $51 million CapEx step-up, trading cash flow was $437 million, free cash flow was $231 million, and net debt was $3 billion with leverage at 1.8x adjusted EBITDA.

Analysts pressed management on why U.S. Orthopaedics weakened, whether Hips delays could spill into the second half, and how credible the new 4% revenue guide and 6% to 7% medium-term growth target are. Management said the biggest issue in Knees is the portfolio gap versus the market, especially limited exposure to Cementless, while Hips was hit by slower-than-expected CATALYSTEM set deployment and a tough comparator, both of which they expect to improve later in the year. On guidance, they said Q3 should improve from Q2 and Q4 should be stronger than Q3, helped by LANDMARK timing, easier skin substitute comparisons, and continued investment in PICO; on tariffs, they said the refunds offset the expected P&L charge this year, with some headwind likely next year.