Smiths Group is improving guidance as installation sales increase

Smiths Group shares topped the FTSE 100 gainers on Wednesday after its John Crane owner upgraded its annual revenue guidance.

The engineering company now expects organic revenue to grow 5 to 7 percent this fiscal year, compared to a previous forecast of 4 to 6 percent.

It also expects operating profit margins to increase by 40 to 60 basis points, having previously just said there would be “continued margin expansion.”

Shares in Smiths Group rose 10.6 per cent to £16.84 on Wednesday afternoon.

In the three months to November 1, the London-based company recorded an organic revenue increase of 15.8 percent thanks to growth across all four of its key business divisions.

Organic sales rose by double-digit percentages at Smiths Detection, which produces airport security scanners, and at Smiths Interconnect, a supplier of microprocessors and graphics chips.

The company said the former division’s performance reflected “a high level of installation activity” and a large order book at the start of the year.

Meanwhile, sales of the latter segment increased by more than 30 percent, as semi-test activities received a boost from a strong recovery in the semiconductor markets.

Roland Carter, CEO of Smiths Group, also said the company benefited from a good performance in the US, where it generates around 45 percent of total sales.

“Our strategy to deliver profitable growth from secularly attractive markets continues to drive our performance,” he added.

Carter was named CEO in March after working for the company for 30 years, including six years as president of Smiths Detection.

On the same day he took over, Smith Group announced a £100m share buyback program as part of its half-year results.

After completing an initial £50 million tranche, Smiths Group is embarking on the second half of the plan but plans to spend a further £50 million on share buybacks by the end of the fiscal year.

Analysts at Stifel said Smiths Group’s trading update was “impressive” and “should be clearly positive for a share price that is languishing.”

They added: ‘We also note that Smiths appears well positioned for new geopolitical realities – low exposure to China, big dollar earners, large hydrocarbon end markets, and largely local-by-local in its markets.’