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Smiths Group shares drop as engineer’s first-half profit, revenue fall, but 2018 guidance reiterated

Last updated: 15:10 23 Mar 2018 GMT, First published: 09:11 23 Mar 2018 GMT

Airport x-ray scanner
The X-ray machines maker reported a 4% fall in first-half revenue to £1.5bn as it took a hit from adverse foreign exchange translation

Smiths Group PLC (LON:SMIN) shares shed almost 10% on Friday after the engineer reported a 12% drop in first-half profit as revenue fell, though it still reiterated its full-year guidance.

The FTSE 100-listed firm saw its pre-tax profit drop to £217mln for the six months to the end of January 2018, down from £248mln in the same period a year earlier and below expectations for £245mln.

READ: Smiths Group agrees around US$35mln sale of John Crane's Bearings business to private Austrian firm

The X-ray machines maker reported a 4% fall in first-half revenue to £1.5bn as it took a hit from adverse foreign exchange translation, though on an underlying basis it was pretty much flat.

Meanwhile, it said its operating profit declined by 11% to £247mln, impacted by programme phasing in the detection business and higher research and development costs in the medical unit, associated with the programme of new product launches.

However, the company lifted its half-year dividend by 1.8% to 13.80p a share.

Smiths Group’s chief executive Andy Reynolds Smith said: "The outlook for 2018 is reaffirmed (on a constant currency basis).

“The group's current trading, the strong order books in John Crane and Smiths Detection, as well as the substantial ongoing programme of new product launches in Smiths Medical, support our confidence that the group's growth rate will accelerate over the balance of the year. At current rates, foreign exchange will remain a headwind for the full year.”

He added: "Over the medium-term, we are confident that we will achieve organic revenue growth above our chosen markets, which in aggregate are growing 3-4% annually.”

Translational benefit set to end

Mike van Dulken, head of research at Accendo Markets, commented: “With markets expecting the UK’s Bank of England to hike in May to temper inflation, the UK allegedly close to a Brexit transition deal, and President Trump keeping the USD on the back foot with his protectionist approach, investors are also factoring in even more upside for GBP/USD. 

“A break above 2018 highs would extend the FX pair’s damaging reversal from Brexit lows, eroding what was a nice translational benefit in the wake of the referendum.”

He noted: “Shares off their lows, but not without a bearish test of Nov 2016 support at 1365p, meaning there could be more downside towards Aug/Sept 16 lows of 1330p.

“In terms of share price recovery potential, the risk is that the 1445p highs of the day, which correspond with breached Dec support, will now become meaningful resistance.”

In late afternoon trading, Smiths Group shares were off early lows but still down 3.5% at 1,482.5p.

 -- Adds broker comment, updates share price --

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