Smith & Nephew SNATS (NYSE:SNN) lowered its full-year revenue and trading profit outlook after continued weakness in its U.S. knee and hip businesses tempered otherwise stronger third-quarter growth.
The medical technology company reported third-quarter revenue of $1.55 billion, up 3.4% on both an underlying and reported basis. Growth accelerated from the second quarter, supported by sports medicine and a return to growth in orthopedics, while advanced wound management was nearly flat.
Chief Executive Officer Deepak Nath said the quarter was broadly in line with the company’s expectations, but management no longer expects a material improvement in U.S. knees and hips in the fourth quarter. Smith & Nephew now expects approximately 3% underlying revenue growth for 2026 and around $1.25 billion in trading profit.
The company also expects free cash flow of around $750 million and a return on invested capital of approximately 9%. Interim Chief Financial Officer Pierre Palassian said the trading profit outlook includes marginal dilution from the Integrity Orthopaedics acquisition.
Orthopedics Review Continues After J&J Talks End
Nath said discussions with Johnson & Johnson about a potential combination involving its DePuy Synthes business have ended. Smith & Nephew approached J&J earlier in the year as part of work to consider strategic options for orthopedics, he said.
The CEO described the talks as intensive and said the company is actively exploring a full range of alternatives for the business. He declined to identify a likely outcome or provide a timetable. While the board considers portfolio strategy across the group, Nath said the active evaluation of strategic options is focused on orthopedics.
“It wouldn’t be helpful for me to speculate on what the likely outcome for that would be,” Nath said, adding that considerations would include stranded costs and the expense of establishing a separate business if a spin-off were pursued.
In the meantime, the company plans to continue investing in its higher-growth, higher-margin sports and wound businesses while executing upcoming orthopedic product launches.
U.S. Knee and Hip Weakness Weighs on Outlook
Orthopedics revenue grew 2.5% on an underlying basis in the quarter, with strong hip and knee performance outside the U.S. and double-digit growth in both categories in emerging markets. In the U.S., however, knees and hips remained weak.
Palassian said the U.S. knee decline primarily reflected business lost in previous periods rather than significant new losses during the quarter. Nath also cited the retirement or exit of several high-volume surgeons earlier in the year. Most of those losses occurred in the first quarter, with some in the second, he said.
The shift toward cementless knees has also been a headwind. Cementless products now account for nearly 40% of the U.S. knee market, compared with about 10% of Smith & Nephew’s knee portfolio, according to Palassian.
The company received U.S. Food and Drug Administration approval for the cementless version of its LANDMARK knee during the quarter and has completed more than 100 cases. Nath said early feedback from surgeons has been positive, but the launch will take time to build. The cemented version is expected in the second quarter of 2027, and he said the second half of that year is the more relevant period for LANDMARK to gain commercial traction.
In hips, demand for CATALYSTEM has been encouraging, but the pace of instrument-set deployment limited the company’s ability to convert and retain some legacy customers, Palassian said. Nath said a more disciplined approach to deploying capital had contributed to the constraint. Management expects additional sets and planned CORI hip robotics launches in 2027 to support performance.
Sports Growth Offsets Wound Headwinds
Sports Medicine and ENT grew 7.9% on an underlying basis, including double-digit U.S. growth across all three segments. Joint repair revenue rose 11.2%, marking its fourth consecutive quarter of double-digit growth. Palassian cited broad strength across shoulder, hip and small-joint repair, including continued growth for REGENETEN.
Advanced Wound Management revenue declined 0.2%. Within the division, advanced wound care grew 1.2%, and advanced wound devices rose 10.7%, helped by PICO and LEAF. Bioactives revenue fell 8.8%, as U.S. skin substitute sales continued to face pressure following reimbursement changes introduced at the start of the year.
Management expects the full-year trading profit headwind from skin substitutes to be toward the upper end of its previously stated $20 million to $40 million range. Nath said the market’s adjustment to the reimbursement changes has taken longer than expected and could remain slower into 2027.
By geography, third-quarter revenue grew 3% in the U.S., 3.2% in other established markets and 4.8% in emerging markets. Excluding China, underlying group growth was 4%.
2027 Guidance Due With Fourth-Quarter Results
Management declined to provide a 2027 growth or margin forecast, saying it would issue guidance and update its medium-term outlook alongside fourth-quarter results. Nath said the growth drivers behind the company’s previously discussed 6% to 7% medium-term growth ambition remain intact, although the business will be starting from a lower revenue base.
Palassian identified potential tariff costs and above-average inflation as margin headwinds next year, while a normalization in skin substitutes could provide a tailwind. He also said the company would continue investing in sports and wound growth opportunities.
Smith & Nephew’s $500 million share buyback remains on track, with $250 million completed by the end of the third quarter, Palassian said.
About Smith & Nephew SNATS (NYSE:SNN)
Smith & Nephew plc is a global medical technology company that develops and sells products used in surgery, orthopaedics and wound care. Its offerings include implants for hip and knee replacement, instruments and devices for sports medicine and ear, nose and throat procedures, and products designed to manage wounds and support tissue repair.
Founded in 1856 in Hull, England, the company began as a pharmacy business before expanding into medical products. It now serves healthcare providers and patients in markets around the world.
Smith & Nephew’s business focuses on orthopaedics, sports medicine and ear, nose and throat care, and advanced wound management.
