Smiths Group sales shrink less in second quarter, miss forecasts

The FTSE 100 company's pre-tax profits declined 9% to £189m on revenue 3% lower at £1.37bn in the six months to 31 January, which was short of consensus analyst estimates. Sales in the first quarter had been down 4%, however.

With basic earnings per share down 9% to 35.2p, the dividend was lifted 2% to 13.25p.

Although oil and gas markets were challenging, John Crane's aftermarket revenues proved resilient to help limit the decline in revenue to 13% to £393m, though operating margins were down 330 basis points (bps) to 19.9%.

Healthcare devices and consumables specialist Smiths Medical grew sales 1% to £411m, with operating margin up 150bps to 20.5%.

Airport X-ray provider Smiths Detection enjoyed solid sales growth of 4% yo £240m and 38% underlying profit profit growth as margins widened 210bps to 12.4%.

Electronic components arm Interconnect saw sales shrink 1% to £196m, while fluid engineering division Flex-Tek swelled sales 3% to £132m.

Chief executive Andy Reynolds Smith, who took the role in September, reassured that expectations for the full year remained unchanged, with performance anticipated to be slightly more weighted to the second half than usual.

Having taken a grand tour of the group's diverse businesses across Europe, the US and China, he said he was confident of being able to "unlock substantial value through improving our operational efficiency, which will generate resources to invest in growth".

For the second half of the year, global energy markets are expected to remain challenging, leading management to take action to ensure that John Crane remains well positioned.

For the second half, Reynolds Smith said he expected Smiths Medical to deliver a similar revenue performance with margins benefitting further from operational efficiencies and restructuring, while Smiths Detection’s strong order book should generate better sales growth but see margins moderate given contract mix and investment in new business.

Thought the headline numbers missed consensus forecasts, broker Investec said there were compensating features to the results, including good cash conversion that left net debt around £65m lower than it had forecast, in spite of a £93m currency hit.

"We expect management to target working capital and further progress can be expected. Coupled with the news released over the last few months concerning steps to de-risk the pension exposure, we expect investors to react positively to the impact of the new top management team," wrote analyst Michael Blogg.

Smiths shares, which had risen since the start of the month on anticipation of a better result, had slipped back 2.5% to 1,050p by 1015 GMT on Wednesday.