March 23, 2018 / 8:07 AM / 3 months ago

UPDATE 2-UK's Smiths posts weaker than expected H1, shares down 11 pct

(Adds shares, analysts comments, outlook on segments)

By Justin George Varghese

March 23 (Reuters) - British engineering company Smiths Group reported a lower than expected first-half profit on Friday, hit by weakness in its core businesses, sending its shares down as much as 11 percent.

Smiths, a provider of hospital equipment, industrial services and sensors to detect explosives, said pretax profit fell 12 percent to 217 million pounds ($306 million) for the six months ending on Jan. 31, missing analysts expectation of 283 million pounds, according to Thomson Reuters data.

Revenue fell 4.3 percent to 1.55 billion pounds, also falling short of expectations of 1.59 billion pounds.

Shares of the company fell as much as 11.1 percent at 0834 GMT, their lowest since November 2016. However, the company kept its expectations for the year unchanged.

Delays in new product launches have hit the FTSE 100 firm’s largest unit, Smiths Medical, with revenue at the division falling 5 percent to 451 million pounds.

Underlying revenue at the John Crane division, its second biggest, which serves oil majors BP and Chevron among others, fell 2 percent to 428 million pounds.

Analysts at Jefferies said in a note Smiths “is long overdue some assistance from its major end markets in returning to and sustaining organic sales growth.”

“Current trading, the strong order books in John Crane and Smiths Detection, as well as the substantial ongoing programme of new product launches in Smiths Medical, support our confidence that the group’s growth rate will accelerate over the balance of the year,” Smiths said in a statement.

The company has been in the process of reorganising John Crane by divesting struggling businesses with an exposure to oil prices, in an effort to boost margins.

Five businesses, including bearings, were sold at the division, raising about 200 million pounds.

Smiths reaffirmed its 2018 full-year outlook, but added that foreign exchange, at current rates, will remain a headwind for the year.

“Delivering the now expected 8 percent organic growth and 70 basis points year-on-year margin improvement in the second-half is key to the investment case going forward, in our view,” analysts at Credit Suisse said, keeping its 2018-2020 forecasts on Smiths unchanged. ($1 = 0.7088 pounds) (Reporting By Justin George Varghese in Bengaluru; Editing by Sunil Nair and David Evans)

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