13th Nov 2024 08:40
(Alliance News) - Smiths Group PLC on Wednesday raised its outlook on the back of a strong start to its financial year, and the company increased its share buyback after opting against pursing an acquisition it had sized up.
The stock jumped 15% to 1,750.00 pence each in London on Wednesday morning.
The London-based engineering firm reported on-year organic revenue growth of 16% for its financial first quarter, which ended November 1. Growth picked up from 3.5% a year prior.
The latest period benefitted from three extra trading day. Without them, growth was 13%.
Smiths Group now expects annual organic revenue growth in the 5% to 7% range, its guidance boosted from the 4% to 6% range. In addition, it now expects a 40 to 60 basis point expansion in its operating profit margin from 16.8% in financial 2024. It had previously predicted "continued margin expansion".
"The first quarter performance on the comparable basis reflected particularly strong organic revenue growth in Smiths Detection, alongside strong growth in John Crane and Flex-Tek aerospace. Smiths Interconnect was the stand-out performer in terms of organic revenue growth as semi-test activity significantly improved," Smiths said.
Smiths said its John Crane unit, which provides products such as mechanical seals for a range of sectors, delivered "high single-digit organic revenue growth in the quarter". The unit continued to see "strong demand".
Smiths Detection saw double-digit organic on-year revenue growth. The provider of threat detection and screening technology works in the aviation, border security and defence sectors.
Elsewhere, Flex-Tek posted low single-digit organic revenue growth. Flex-Tek provides heating elements and thermal systems and engineering solutions focused on the transfer of fluids and gases in "extreme environments".
Finally, electrical connectors and cable assemblies-focused Smiths Interconnect delivered "organic revenue growth of more than 30%" against a tepid comparative from a year prior.
Smiths launched an "acceleration plan" in September aimed at delivering productivity and capability enhancements across the group.
It added Wednesday: "Each of the businesses has now initiated specific initiatives under the programme. As examples, John Crane has appropriately consulted with works councils and internally announced its plan to move wet seal and couplings machining activity within the Americas, and to consolidate wet seal assembly from Thailand to its India hub to create scale economies closer to its customers.
"Smiths Detection has now dedicated a transformation team to drive the identified key process improvements in its end-to-end execution capability and to deliver the associated medium-term savings. Smiths Interconnect is investing in its semi-test business to expand local design and manufacturing capabilities in the USA."
Smiths also said it will resume its previously announced share buyback programme, for which a first tranche of GBP50 million was completed in September.
The second portion will now be worth GBP100 million, upsized from GBP50 million.
"The resumption of the buyback follows the group's decision not to pursue a medium-sized acquisition it was closely evaluating in September and October, consistent with its disciplined approach to acquisitions. The group's acquisition pipeline remains active beyond this opportunity," Smiths explained.
"The additional buyback demonstrates a track record of returning excess capital, having returned more than GBP1.2 billion in the last three years through buyback and dividend. The group will continue to use a progressive dividend and regular buyback alongside reviewing value-accretive acquisitions."
The company reports half-year results on March 25 next year.
By Eric Cunha, Alliance News news editor
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