Smith & Nephew cites Katrina for decline in orthopaedic sales

SMITH & Nephew, maker of artificial hips and knees, issued a profit warning yesterday, blaming the damage caused by Hurricane Katrina for a downturn in sales.

Sir Chris O’Donnell, the chief executive, said that the situation in the southern states of the US was “very serious”.

“There is essentially a complete dislocation of hospital services, patients and doctors, particularly for elective, non-emergency surgery,” he said. “We have a relatively strong market share in that part of the southern United States,” he added.

“The areas around Louisiana and Mississippi account for around 1pc of orthopaedic sales.”

The company’s shares fell from 543½p to 509p. Sir Chris said that, as well as the hurricane, sales growth over the summer had been below expectations.

“Growth of knee products was slower after new product rollouts by competitors,” he added.

Smith & Nephew reduced its underlying sales growth guidance for the full year by 1pc to 17pc for orthopaedics. It also said that continued decline in distributor inventories had caused it to reduce full year guidance for underlying sales growth in the wound management division from 6pc to 5pc.

The company also said the benefit of currency translation had diminished, meaning that the trading margin for the full- year will also be slightly lower, and full- year earning per share growth will be between 12pc and 13pc.

“ About one-third of the downgrade is attributable to Hurricane Katrina and the other two-thirds due to tougher competition in knees,” Sir Chris said.

Code Securities downgraded its expectations, although analyst Michael King believes the share price fall is overdone.

“We believe that shares are likely to recover from the initial negative reaction to the trading statement, although we remain cautious in the long-term given the prospect of greater pricing pressure in the US next year.” he said.