Smiths Group (LON:SMIN) leaders used the company’s fiscal 2026 first-half earnings call to emphasize the strategic reshaping of the portfolio, including agreed sales of Smiths Interconnect and Smiths Detection, while reporting solid underlying performance and reiterating expectations for a stronger second half.
Portfolio reshaping and shareholder returns
CEO Roland Carter said the first half of fiscal 2026 was “strategically important” as Smiths executed major portfolio actions and “achiev[ed] attractive valuations for both Smiths Interconnect and Smiths Detection.” Carter said the two agreed transactions were ahead of schedule and valued at a combined £3.3 billion at multiples “above market expectations.”
- A £500 million buyback completed in the prior calendar year
- A £1.0 billion buyback linked to Interconnect proceeds, with a first £600 million tranche expected to be completed by the end of the current fiscal year and the program “substantially complete” by the end of calendar 2026
- A newly announced plan to return £1.5 billion of Smiths Detection proceeds through a tender offer or special dividend plus a share buyback, expected to run through calendar 2027
Carter said Smiths has returned more than £2.3 billion to shareholders via dividends and buybacks over the past four and a half years, and that with the remaining buybacks and the newly announced program, more than £2.0 billion remains to be returned through 2027.
Chief Financial Officer Julian Beswick said the £1.5 billion figure was based on a valuation of £2.0 billion for Smiths Detection, with net proceeds expected to be lower. He added the return amount reflected “a balancing act” that also considers maintaining an efficient balance sheet, an appropriate leverage level, continued bolt-on M&A, and expected operating cash flows and dividend outflows over the next 18 months.
First-half results and margin progress
Beswick noted the reporting complexity during the separations and explained that “Smiths” now refers to the continuing businesses John Crane and Flex-Tek. On that basis, Smiths delivered 0.4% organic revenue growth in the first half, with reported revenue down 1% as a 1.4% acquisition contribution in Flex-Tek was offset by 2.8% adverse foreign exchange.
Smiths’ operating margin expanded 20 basis points to 19.8%, which management described as progress toward a medium-term margin target of 21%-23%. On a broader “group” basis (including Smiths Detection as previously guided), organic revenue grew 4%, and operating profit increased 7.2% organically, with 50 basis points of margin expansion.
Other first-half metrics cited included reported earnings per share of 62 pence (up 11.7% year over year), return on capital employed rising 130 basis points to 18.4%, and operating cash conversion of 78%. Beswick attributed cash conversion to lower capital expenditures of £29 million following completion of most prior-year automation and capacity investments, partly offset by working capital outflows in John Crane and Smiths Detection to support second-half deliveries.
Business updates: John Crane momentum, Flex-Tek mixed end markets
John Crane posted 2% organic growth, with management highlighting a stronger second quarter following a marginal decline in the first quarter. Energy grew 3.9%, supported by healthy Dry Gas Seal demand, while systems sales were affected by project phasing in Europe and Asia. Industrial performance was lower due to overcapacity in Chinese chemicals, partly offset by strength in mining and pulp and paper in the Americas.
John Crane’s margin expanded 50 basis points to 23.2%, reflecting pricing and mix benefits from higher aftermarket growth, plus benefits from the Smiths Excellence and Acceleration Plan initiatives. Management said the impact of U.S. tariffs on John Crane was limited. The company also highlighted product activity including uptake of the Type 93AX separation seal and the launch of a new mechanical seal designed for ethane and ethylene pipelines, which management said had already improved performance for a U.S. Gulf Coast operator.
Flex-Tek reported a 2% organic revenue decline for the half, driven by weakness in U.S. residential construction and customer destocking of heat kits, offset by 10.1% organic growth in aerospace. Beswick said acquisitions added £12 million (3.4%) to growth, offset by foreign exchange. Flex-Tek’s operating margin was 20.4%, down 60 basis points, reflecting lower volumes, completion of a higher-margin ultra-high heat contract, and higher material costs, partly offset by efficiency savings and early benefits from the Acceleration Plan.
During Q&A, management characterized pricing as “positive” in John Crane and said Flex-Tek pricing pressure was concentrated in construction due to market conditions, while thermal solutions and aerospace were seeing positive pricing. Carter said the housing recovery pace remains uncertain, and Beswick said the company had taken a “cautious view” on the construction market outlook.
Guidance updated for continuing operations
Following the reclassification of discontinued operations, management updated fiscal 2026 guidance for continuing operations. The company expects:
- Organic revenue growth of 3%-4%, with a stronger second half within the company’s medium-term target range
- Operating profit margin of around 20%
- Cash conversion in the low-to-mid 90% range
For John Crane, management said the second half is expected to grow at a mid-single-digit rate similar to the second quarter, supported by a strong order book across original equipment and aftermarket and a positive book-to-bill. For Flex-Tek, management expects a stronger second half led by aerospace strength and improved thermal comparisons as destocking effects fade, while reiterating uncertainty around U.S. housing.
Middle East exposure and operational considerations
Management addressed investor questions about the Middle East, emphasizing employee safety and noting uncertainty was not included in guidance. Beswick said the Middle East contributed around 7% of Smiths revenue in the first half, primarily in John Crane, while Carter later added that the region represented 12% of John Crane revenue.
Carter said the company was seeing “noise” in the very short term as customers respond differently, including urgent needs, focus on maintaining operations, or managed shutdowns. He also said John Crane’s aftermarket exposure—more than 70% of the business—adds resilience, and described how shutdowns and restarts can increase the need for service and replacement parts. He added that operational performance and lead times have improved, positioning the business to respond, while acknowledging that any broader macroeconomic impacts from energy costs and supply chain disruption remain uncertain.
About Smiths Group (LON:SMIN)
Smiths Group plc operates as an industrial engineering company in Americas, Europe, the Asia Pacific, and internationally. It operates through four businesses: John Crane, Smiths Detection, Flex-Tek, and Smiths Interconnect. The John Crane business engineers mechanical seals, seal support systems, power transmission couplings, and specialized filtration systems. The Smiths Detection business provides sensors and systems that detect and identify explosives, narcotics, weapons, chemical agents, biohazards, and contraband.
