Smiths Group forecasts 4% growth and 21% margin for 2027

Smiths Group plc (LON:SMIN) projects organic revenue growth of about 4% and a headline operating margin of approximately 21% for fiscal 2027. This outlook anticipates the company entering its medium-term target range sooner than previously expected, despite anticipated disruptions in the Middle East affecting its John Crane business.

For fiscal 2026, the company reported continuing-operations revenue of £1.9 billion, representing a 1.2% organic increase. Headline operating profit rose 1.9% organically to £399 million, while the headline operating margin expanded by 20 basis points to 20.6%. Headline earnings per share increased 6% to 86.8 pence, and total group headline EPS climbed 12% to 135.7 pence. The board recommended a final dividend of 33.5 pence per share, resulting in a full-year dividend of 48.5 pence, a 5.4% rise. Operating cash flow reached £384 million, with cash conversion at 96%.

The portfolio reshaping included the sale of Smiths Interconnect and Smiths Detection for a combined enterprise value of £3.3 billion. Smiths also acquired DRC Heat Transfer for £165 million in April, adding exposure to data center cooling and power generation markets. DRC contributed £35.5 million in revenue during its four months of ownership, with management citing a pro forma growth rate of more than 20%. Additionally, the company agreed to sell three non-core Flex-Tek industrial businesses for £40 million.

Chief Financial Officer Julian Fagge noted that John Crane's revenue rose 2.3%, though Middle East conflict reduced second-half performance by about £20 million. Excluding this impact, management stated John Crane would have delivered 4% annual growth and more than 5% growth in the second half. The division's headline operating profit increased 3.5% organically to £270 million, with margins improving by 30 basis points to 23.9%. Fagge indicated that pricing actions and savings from the Acceleration Plan supported these results, partially offset by tariffs and increased strategic spending.

Flex-Tek revenue declined 0.4% during the year, driven by weakness in U.S. residential construction and thermal solutions. Construction revenue fell 3.6% but returned to growth in the fourth quarter, rising 2.9%. Thermal solutions revenue dropped 6.2%, impacted by heat-kit destocking worth £13 million and a completed ultra-high-temperature project with a £7 million year-over-year effect. In contrast, Flex-Tek Aerospace grew 10.6%, fueled by order-book execution and contract renewals with major aircraft-engine manufacturers.

Smiths has completed a £1 billion share buyback related to the Interconnect sale and a previously announced £500 million repurchase. A further £1.5 billion in repurchases from the Detection sale remains to be executed, with the company expecting substantial completion by the end of calendar 2027. The firm also launched a marketing process to divest John Crane's U.S. legacy asbestos liability, which has averaged an annual net cash outflow of about £20 million over the past five years.