Smith & Nephew has cut its full-year profit forecast and confirmed that talks about combining its orthopaedics business with Johnson & Johnson's DePuy Synthes unit have ended. The British medical technology company said on Wednesday 4 November that weaker-than-expected growth in its US orthopaedics business, its biggest division, weighed on its outlook.

The downgrade

Third-quarter revenue rose 3.4% to $1.55 billion, supported by strong sports medicine sales and improving wound care trading. But the company now expects full-year underlying revenue growth of around 3.0%, down from 4.0%, and trading profit of approximately $1.25 billion, down from about $1.30 billion. It also cut free cash flow guidance to $750 million from $800 million. The slowdown in US hips and knees is expected to continue through the fourth quarter.

The J&J talks

Smith & Nephew said it approached Johnson & Johnson earlier this year as part of a strategic review of its orthopaedics division, which accounts for about 40% of annual sales. Discussions took place but have now ended, and the company said it would continue to explore strategic options for the business. Reuters reported, citing a person familiar with the matter, that Smith & Nephew had offered as much as $22 billion for Johnson & Johnson's hip and knee replacement unit, and that the talks collapsed after the two sides could not agree on who would run the enlarged group. The company itself gave no reason for the breakdown.

Shares and outlook

Shares slipped 1.7% in early trading after the announcement. The company said it would keep exploring options for the orthopaedics arm as it works out the best outcome for shareholders, patients, customers and staff.