Layoffs: Smith & Nephew cuts 80 in Memphis orthopedics arm

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Smith & Nephew (NYSE:SNN) laid off 80 employees following the merger of its Andover, Mass.-based endoscopy unit and its Memphis, Tenn.-based orthopedic reconstruction unit, according to a report in the Memphis Commercial Appeal.

The British orthopedic giant announced that it would combine the two units in July, alongside the resignation of Memphis-based orthopaedic reconstruction president Joseph DeVivo.

No layoffs were expected as a result of the move, SNN spokesman Andrew Burns said at the time, but apparently resulted in 80 jobs cut in Memphis and another 70 worldwide.

"There were duplications in roles when we bring these two division together," Burns told the newspaper. "You couple that with a more challenging economic and regulatory environment in some of our more established markets, it’s an overall negative effect on our entire industry, not just Smith & Nephew."

The two units made up about 77 percent of Smith & Nephew’s total global sales during the nine months ended October 1.

Smith & Nephew posted profits of $133 million, or 14.9 cents per share, on sales of $1.03 billion for the quarter – a top-line increase of 9.7 percent when compared with the $941 million in revenues reported for the same period last year. But Q3 2010 profits were $137 million, or 15.4 cents per share.

The rub came from a profit margin of 15.6 percent for the workhorse ortho division, compared with a 22.2 percent margin for Q3 2010. Smith & Nephew chalked the decline up to three factors:

"First, we continued to experience pressure on the gross margin from the sales mix, a trend seen in the first half of the year. Top line growth was driven by products and geographies where we achieved lower margins, reducing the gross profit margin by about 200 basis points," according to a press release. "Second, orthopaedics experienced an unusually high level of periodic costs – legal, inventory and receivables – in the quarter, totaling about $10 million.

"Finally, it is clear that the modest growth and continuing pricing pressures in established markets necessitate a lower orthopaedics cost base. Actions were underway to address this, but these have not been adequate, resulting in a cost base which was $10 million too high in the quarter. The new combined orthopaedics and endoscopy management team has instigated much tighter controls over spending and we are confident that the orthopaedics margin will improve materially from Q4 onwards."

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