Smiths Group raises earnings expectations thanks to record organic sales growth and favorable currency fluctuations
- Smiths now expects organic sales to grow 8% or more this fiscal year
- The company’s investors received £657 million from the sale of Smiths Medical
- Exchange rate fluctuations accounted for more than 40% of sales growth
Smiths Group has raised its annual expectations again after record organic sales growth in the first half of the year driven by favorable currency movements and demand for construction products.
The engineering firm now expects organic sales to grow 8 percent or more this fiscal year, compared to an earlier forecast in January for growth of at least 7 percent, which in itself was an increase from previous forecasts.
Total sales increased by £305m to just under £1.5bn for the six months ended January, up about a quarter year-on-year, with favorable exchange rate movements accounting for more than 40 per cent of the growth.
Outlook: Smiths Group now expects organic sales to grow 8 percent or more this fiscal year, compared to a previous forecast in January for growth of at least 7 percent
Most of the revenue growth was driven by a record organic revenue growth of 13.5 percent, as all business segments, geographies and customer end markets performed strongly.
Of the Smiths Group’s four divisions, hose and pipe manufacturer Flex-Tek saw the fastest sales growth driven by high orders for heating, ventilating and air-conditioning equipment.
At the same time, John Crane, the group’s largest company, saw revenues increase by more than £100 million on solid orders from the life sciences, pulp and paper and chemical processing sectors.
The division, which supplies mechanical seals for oil pipelines, among other things, earned a lot of revenue from the booming petroleum and renewable energy industries.
It has received significant orders in the aftermath of the war in Ukraine from countries seeking to expand oil production to make up for lost capacity from Russia.
While it has done so, it has won multiple contracts to develop hydrogen projects in Europe and Canada, as well as an expansion of carbon capture and storage deployment in Wyoming, USA.
Smiths Group said John Crane’s customers “require systems to be more reliable and energy efficient, interconnected and digitally enabled, and to use diverse low-carbon energy sources.”
It added: ‘These trends benefit John Crane as they require significant investment in new infrastructure and modifications to existing infrastructure, as well as new technology to reduce costs and accelerate the deployment of cleaner energy.’
John Crane drove around half of Smiths Group’s operating income growth, which rose by £30 million to £187 million.
On a statutory basis, the London-listed company’s profit was 90 percent lower after benefiting from a £1bn profit on the sale of its medical division last year.
Investors have received £657 million in proceeds from the sale as part of a share buyback programme, with a further £85 million being returned to them.
In addition, they received a 5 percent increase in the interim dividend to 12.9 pence per share.
Smiths Group shares were 1.4 per cent, or 23.5p, higher at £17.39 on Friday morning. In the past three years, they have increased by about 93 percent.