Smiths Group misses target on margins

Smiths Group came back to Earth with a bump in morning trading on Tuesday after a perceived minor miss on its financial results sent shares in the FTSE 100 group tumbling from all-time highs hit a day earlier.
The company is the last of the great British industrial conglomerates, with its four multinational divisions — John Crane, Detection, Flex-Tek and Interconnect — spanning the energy, aviation and aerospace, construction, automotive and semiconductor industries. It employs 15,000 people in 50 countries.
In the year to the end of July, Smith reported organic revenue growth of 5.4 per cent, excluding the impacts of foreign exchange fluctuations and acquisitions, to £3.1 billion, and a 7.1 per cent rise in operating profit to £526 million.
While that appears to be a decent performance in a global industrial market which has been facing many operational and financial challenges, some analysts had expected a higher operating profit number and better than the 5.2 per cent dividend rise to 43.75p.
As a result the bears took hold, sending the shares down 7 per cent.
On Monday the stock peaked at £18.20, valuing the company at £6.2 billion — a near 50 per cent rise from the depths of the pandemic and a steady 15 per cent rise since spring, when Roland Carter was promoted to chief executive after his predecessor, Paul Keel, returned abruptly to America. Keel had been shaking up the business since 2021.
In morning trading on Tuesday, Smiths shares fell 128p to £16.92.
Of all the medium-term targets set by the company, the one it is currently lagging is operating margins, coming in at 16.8 per cent for the year — a 30 basis-point improvement on the prior year but still short of its goal of 18 per cent to 20 per cent.
Carter has launched a new “acceleration plan” to further shake up the company, which for many investors prior to the pandemic had long failed to live up to its potential. He is promising to spend up to £65 million on improving productivity and optimising its facilities, which should bring in up to £35 million of annual benefits but these will not be fully seen until 2027.
The company also announced that it had spent £110 million on buying two businesses for the US end of its industrial division Flex-Tek, one in heating and ventilation and one in electrical heating.
Carter suggested that investors could expect further growth in revenues and margins, saying: “We are making good strategic, operational and financial progress.”