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STERIS Corporation Announces Fiscal 2009 Third Quarter Results
Date:1/27/2009

MENTOR, Ohio, Jan. 27 /PRNewswire-FirstCall/ -- STERIS Corporation (NYSE: STE) today announced financial results for its fiscal 2009 third quarter ended December 31, 2008. Fiscal 2009 third quarter revenues increased 2% to $319.5 million compared with $314.0 million in the third quarter of fiscal 2008, driven by 4% growth in the Healthcare business segment. Fiscal 2009 third quarter net income was $28.6 million, or $0.48 per diluted share, compared with net income of $21.8 million, or $0.34 per diluted share, in the third quarter of fiscal 2008.

During the third quarter the Company continued its cost reduction efforts, taking actions primarily related to its international operations, which are anticipated to generate annualized savings of approximately $20 million. The Company anticipates that these savings will be realized over the next several years, with approximately $4 million benefiting fiscal 2009, approximately $10 million benefiting fiscal 2010 and the remainder in fiscal 2011 and beyond.

As a result, the Company incurred a net pre-tax charge of $12.3 million in the third quarter. On the consolidated statements of income, $2.8 million of this charge was recorded as restructuring expense and $9.5 million was recorded in cost of goods sold. In addition, during the quarter the Company made changes to certain benefit policies which resulted in an additional $7.9 million in pre-tax income. Included in income from operations for the third quarter of fiscal 2008 is a pre-tax charge of $1.3 million primarily related to the transfer of manufacturing operations from Erie, Pennsylvania to Monterrey, Mexico.

Excluding both the restructuring charge and the adjustment for benefit changes, net of tax, fiscal 2009 third quarter net income was $31.3 million, or $0.53 per diluted share. For the third quarter of fiscal 2008, excluding the Erie/Mexico transfer, net income was $22.6 million, or $0.35 per diluted share. The following table outlines the impact of these items, which impact the comparability of net income for the third quarter of fiscal 2009 relative to the same period in the prior year.


    (in thousands, except per         Three Months Ended December 31,
     share data)                      2008                      2007
                                Amount    Diluted EPS    Amount    Diluted EPS
    Net Income as reported     $28,575       $0.48      $21,776       $0.34

      Erie/Mexico Transfer,
       Net of Tax                   $-          $-         $789       $0.01
      Restructuring, Net of
       Tax                      $7,715       $0.13           $-          $-
      Change in Benefit
       Policy, Net of Tax      $(4,948)     $(0.08)          $-          $-

                               $31,342       $0.53      $22,565       $0.35

"Like many in our industry, we saw the impact of the broader economic issues affecting our top-line performance in the third quarter. In particular, within our Healthcare segment, sales for our infection control related capital equipment saw a slowdown. However, our surgical products showed strong growth in the quarter, driven by new products," said Walt Rosebrough, president and chief executive officer of STERIS Corporation. "Substantial growth in profitability was driven by the fine work of our people to improve our efficiencies in conjunction with acceptance of our new products by our Customers. We now believe that fiscal 2009 revenue growth will be approximately 4%, while earnings will be toward the high end of our range of $1.65 - $1.80."

Quarterly Segment Results

Healthcare revenues in the quarter increased 4% to $230.2 million compared with the third quarter of fiscal 2008. Contributing to that growth, sales of capital equipment increased 6%, driven in part by increased demand for the Company's new product offerings. Service also reported solid growth in the quarter of 5%, while consumables were up slightly compared to the prior year. Order backlog levels at quarter end increased 25% to a record $133.9 million. Operating income was $32.4 million, an increase of 10% compared with the prior year period, driven by increased volumes and improved operating expense leverage. Excluding the restructuring charge and the adjustment for benefit changes, Healthcare operating income was $36.5 million.

Life Sciences third quarter revenues were $52.8 million, a decrease of 6% compared with the third quarter of fiscal 2008. Solid growth in consumables and service was more than offset by a 21% decline in capital equipment revenues, which was driven by a continued slowdown in spending from pharmaceutical customers. Order backlog declined 14% to $50.2 million compared with the prior year period. Life Sciences operating income was $7.2 million in the quarter compared with $2.3 million in the third quarter of fiscal 2008. Operating income benefited from increased gross margins and improved operating expense leverage. Excluding the restructuring charge and the adjustment for benefit changes, Life Sciences operating income was $8.3 million.

Fiscal 2009 third quarter revenues for Isomedix Services were $34.6 million, a slight increase compared with the same period last year. Revenue growth was affected by the sale of a Chicago-area facility in the second quarter of fiscal 2009. Operating income was $8.5 million compared with $7.0 million in the prior year quarter. Excluding the adjustment for benefit changes, Isomedix operating income for the third quarter of fiscal 2009 was $7.7 million.

Cash Flow

Net cash provided by operations in the first nine months of fiscal 2009 was $108.3 million, compared with net cash provided by operations of $94.9 million in the first nine months of fiscal 2008. The increase in cash from operations was primarily driven by the increase in earnings. Free cash flow (see note 1) for the first nine months of fiscal 2009 was $89.6 million, compared with free cash flow of $60.5 million in the first nine months of fiscal 2008. Free cash flow for the fiscal 2009 period was impacted by the increase in earnings, lower capital spending and the sale of an Isomedix facility during the second quarter, which added $9.5 million to free cash flow.

During the third quarter, the Company repurchased 1,000,277 shares of its common stock at an average price of $30.25 per common share for a total amount of $30.3 million. During the first nine months of fiscal 2009, the Company repurchased 2,421,177 shares of its common stock at an average price of $30.74 for a total amount of $74.4 million. Approximately $204 million remains under the current share repurchase authorization.

Outlook

Based upon fiscal year-to-date performance and current anticipated trends for the remainder of the year, the Company anticipates revenue growth of approximately 4% for fiscal 2009, and earnings per diluted share, as reported, toward the high end of the range of $1.65 - $1.80. This outlook reflects certain assumptions and is subject to numerous uncertainties, some of which are listed below:

    -- Revenue growth for the full year is expected to be in the mid single
       digits in Healthcare, the low single digits for Isomedix, and a slight
       decline in Life Sciences.
    -- The Company has assumed the forward exchange rates for the U.S. dollar
       and key international currencies as of mid-December 2008.
    -- The Company is assuming a modest increase in material costs.
    -- Operating margin, as reported, is anticipated to be approximately 12.5%
       for the full year.
    -- The anticipated effective tax rate is approximately 34% for the full
       year.

For the full fiscal year, free cash flow (see note 1) is now anticipated to be approximately $110 million, and capital expenditures are anticipated to be approximately $40 million.

Conference Call

In conjunction with this press release, STERIS Corporation management will host a conference call today at 10:00 a.m. Eastern time. The conference call can be heard live over the Internet at www.steris-ir.com or via phone by dialing 1-888-392-9976 in the United States and Canada, and 1-517-645-6486 internationally, then referencing the password "STERIS."

For those unable to listen to the conference call live, a replay will be available from 12:00 p.m. Eastern time on January 27, 2009 until 5:00 p.m. Eastern time on February 9, 2009, either over the Internet at www.steris-ir.com or via phone by calling 1-800-756-3940 in the United States and Canada, and 1-402-998-0796 internationally.

About STERIS

STERIS Corporation is a leading provider of infection prevention and surgical products and services, focused primarily on the critical markets of healthcare, pharmaceutical and research. The Company's more than 5,000 dedicated employees around the world work together to supply a broad array of solutions by offering a combination of equipment, consumables and services that enhance Customer productivity and quality, and help make the world a safer place. The Company is listed on the New York Stock Exchange under the symbol STE. For more information, visit www.steris.com.

(1) Free cash flow is a non-GAAP number used by the Company as a measure to gauge its ability to fund future growth opportunities, repurchase common shares, and pay cash dividends. Free cash flow is defined as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net, plus proceeds from the sale of property, plant, equipment and intangibles. STERIS's calculation of free cash flow may vary from other companies.

This news release, and the conference call referenced here, may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to the Company or its industry that are intended to qualify for the protections afforded "forward- looking statements" under the Private Securities Litigation Reform Act of 1995 and other laws and regulations. Forward-looking statements speak only as to the date of this report, and may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," "outlook," "potential," "confidence," and "seeks," or the negative of such terms or other variations on such terms or comparable terminology. Many important factors could cause actual results to differ materially from those in the forward-looking statements including, without limitation, disruption of production or supplies, changes in market conditions, political events, pending or future claims or litigation, competitive factors, technology advances, actions of regulatory agencies, and changes in government regulations or the application or interpretation thereof. Other risk factors are described in the Company's Form 10-K and other securities filings. Many of these important factors are outside STERIS's control. No assurances can be provided as to any outcome from litigation, regulatory action, administrative proceedings, government investigations, warning letters, cost reductions, business strategies, level of share repurchases, earnings and revenue trends, expense reduction or other future financial results. Unless legally required, the Company does not undertake to update or revise any forward-looking statements even if events make clear that any projected results, express or implied, will not be realized. Other potential risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements include, without limitation, (a) the potential for increased pressure on pricing that leads to erosion of profit margins, (b) the possibility that market demand will not develop for new technologies, products or applications, or the Company's business initiatives will take longer, cost more or produce lower benefits than anticipated, (c) the possibility that application of or compliance with laws, court rulings, regulations, regulatory actions, including without limitation the previously disclosed FDA warning letter, certifications or other requirements or standards may delay or prevent new product introductions, affect the production and marketing of existing products, or otherwise affect Company performance, results, or value, (d) the potential of international unrest or effects of fluctuations in currencies, tax assessments or rates, raw material costs, benefit or retirement plan costs, or other regulatory compliance costs, (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Company's products and services, (f) the possibility that anticipated cost savings or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with the matters described in this release, and the conference call referenced here, may adversely impact Company performance, results, or value, (g) the effect of the credit crisis on our ability, as well as the ability of our customers and suppliers, to adequately access the credit markets when needed, and (h) those risks described in our Annual Report on Form 10-K for the year ended March 31, 2008, filed with the SEC on May 30, 2008, under Item 1A, "Risk Factors."



    STERIS Corporation
    Consolidated Condensed Statements of Income
    (In thousands, except per share data)

                                   Three Months Ended     Nine Months Ended
                                      December 31,            December 31,
                                   2008        2007        2008        2007
                               (Unaudited) (Unaudited) (Unaudited) (Unaudited)

      Revenues                  $319,467    $313,974    $954,159    $889,920
      Cost of revenues           195,400     187,372     567,228     527,510
      Gross profit               124,067     126,602     386,931     362,410

      Operating expenses:
        Selling, general, and
         administrative           67,272      82,015     231,910     249,929
        Research and development   8,122      10,173      24,469      27,963
        Restructuring expense      2,855         952       2,726       3,041
      Total operating expenses    78,249      93,140     259,105     280,933

      Income from operations      45,818      33,462     127,826      81,477
      Non-operating expense, net   2,848         935       6,211       2,572
      Income tax expense          14,395      10,751      38,746      27,908
      Net income                 $28,575     $21,776     $82,869     $50,997

      Earnings per common share
       (EPS) data:
           Basic                   $0.49       $0.35       $1.41       $0.80
           Diluted                 $0.48       $0.34       $1.39       $0.79

      Cash dividends declared per
       common share outstanding    $0.08       $0.06       $0.22       $0.17

      Weighted average number of
       common shares outstanding
       used in EPS computation:
        Basic number of common
         shares outstanding       58,660      62,995      58,889      64,073
        Diluted number of common
         shares outstanding       59,347      63,836      59,790      64,931



    STERIS Corporation
    Consolidated Condensed Balance Sheets
    (In thousands)
                                                  December 31,       March 31,
                                                      2008              2008
    Assets                                        (Unaudited)
    Current assets:
      Cash and cash equivalents                    $106,050           $51,868
      Accounts receivable, net                      215,883           249,814
      Inventories, net                              148,116           147,210
      Other current assets                           44,077            64,484
        Total Current Assets                        514,126           513,376

      Property, plant, and equipment, net           361,263           384,642
      Goodwill and intangible assets, net           311,792           337,980
      Other assets                                    7,730             3,294
    Total Assets                                 $1,194,911        $1,239,292

    Liabilities and Shareholders' Equity
    Current liabilities:
      Accounts payable                              $59,003           $75,532
      Other current liabilities                     124,111           154,827
        Total Current Liabilities                   183,114           230,359

      Long-term debt                                210,000           179,280
      Other liabilities                              86,942           123,501
      Shareholders' equity                          714,855           706,152
    Total Liabilities and Shareholders' Equity   $1,194,911        $1,239,292



    STERIS Corporation
    Consolidated Condensed Statements of Cash Flows
    (In thousands)
                                                       Nine Months Ended
                                                           December 31,
                                                      2008             2007
                                                  (Unaudited)      (Unaudited)
      Operating Activities:
        Net income                                  $82,869          $50,997
        Non-cash items                               50,606           36,900
        Working capital adjustments                 (25,151)           7,048
      Net cash provided by operating
       activities                                   108,324           94,945

      Investing Activities:
        Purchases of property, plant,
         equipment, and intangibles, net            (29,704)         (39,142)
        Proceeds from sale of property,
         plant, equipment and intangibles            10,981            4,740
        Equity investment in joint venture           (4,150)             -
      Net cash used in investing
       activities                                   (22,873)         (34,402)

      Financing Activities:
        Proceeds from the issuance of
         long-term obligations                      150,000                -
        (Payments) proceeds under credit
         facilities, net                            (79,180)          31,925
        Payments on long-term obligations           (40,500)            (500)
        Deferred financing fees and debt
         issuance costs                                (476)            (443)
        Repurchases of common shares                (80,466)         (94,758)
        Cash dividends paid to common
         shareholders                               (12,981)         (10,910)
        Stock options and other equity
         transactions, net                           42,020           14,131
      Net cash provided by (used in)
       financing activities                         (21,583)         (60,555)
      Effect of exchange rate changes on
       cash and cash equivalents                     (9,686)           3,104
      Increase in cash and cash equivalents          54,182            3,092
      Cash and cash equivalents at
       beginning of period                           51,868           52,296
      Cash and cash equivalents at end of
       period                                      $106,050          $55,388



    STERIS Corporation
    Segment Data
    (In thousands)
                                   Three Months Ended      Nine Months Ended
                                      December 31,            December 31,
                                   2008        2007        2008        2007
                               (Unaudited) (Unaudited) (Unaudited) (Unaudited)
     Segment Revenues:

       Healthcare               $230,177    $220,451    $682,078    $622,826
       Life Sciences              52,787      56,305     157,977     155,330
       STERIS Isomedix Services   34,642      34,555     108,476     104,820
       Total Reportable Segments 317,606     311,311     948,531     882,976
       Corporate and Other         1,861       2,663       5,628       6,944
     Total Segment Revenues     $319,467    $313,974    $954,159    $889,920


     Segment Operating Income (Loss):

       Healthcare                $32,406     $29,343     $94,334     $68,873
       Life Sciences               7,151       2,337      14,426       5,975
       STERIS Isomedix Services    8,453       7,025      26,851      21,827
       Total Reportable Segments  48,010      38,705     135,611      96,675
       Corporate and Other        (2,192)     (5,243)     (7,785)    (15,198)
     Total Segment Operating
      Income                     $45,818     $33,462    $127,826     $81,477



    STERIS Corporation
    Non-GAAP Disclosures (Unaudited)
    (In thousands, except per share data)

The following tables present financial measures which are considered to be "non-GAAP financial measures" under Securities Exchange Commissions rules. The Company has referred to results of operations excluding restructuring charges and a change in a benefit policy in order to provide meaningful comparative analysis between the periods presented.

Free cash flow is defined by the Company as cash flows from operating activities less purchases of property, plant, equipment and intangibles, net (capital expenditures) plus proceeds from the sale of property, plant, equipment and intangibles. The Company uses free cash flow as a measure to gauge its ability to fund future growth opportunities, repurchase common shares, and pay cash dividends. STERIS's calculation of free cash flow may vary from other companies.


                                                       Nine Months Ended
                                                           December 31,
                                                      2008             2007
                                                  (Unaudited)      (Unaudited)
    Calculation of Free Cash Flow from
     continuing operations:

      Cash flows from operating activities         $108,324          $94,945
      Purchases of property, plant,
       equipment, and intangibles, net              (29,704)         (39,142)
      Proceeds from the sale of property,
       plant, equipment, and intangibles             10,981            4,740
    Free Cash Flow from Continuing Operations       $89,601          $60,543

The following tables reconcile reported net income to net income excluding restructuring charges and a change in a benefit policy:


                                      Three Months Ended December 31,
                                      2008                     2007
                                Amount    Diluted EPS    Amount    Diluted EPS
    Net Income                 $28,575       $0.48      $21,776       $0.34

         Erie/Mexico Transfer,
          Net of Tax                $-          $-         $789       $0.01
         Restructuring, Net of
          Tax                   $7,715       $0.13           $-          $-
         Change in Benefit
          Policy, Net of Tax   $(4,948)     $(0.08)          $-          $-

                               $31,342       $0.53      $22,565       $0.35



                                       Three Months Ended December 31,
                                                     2008
    Segment Operating Income (Loss)
    Excluding Restructuring Charges
    and an Adjustment for Benefit
    Changes:
                                                           Change in
                                      As    Restructuring   Benefit
                                   Reported    Charges      Policy    Total

      Healthcare                   $32,406     $9,958      $(5,850)  $36,514
      Life Sciences                 $7,151     $2,385      $(1,227)   $8,309
      STERIS Isomedix Services      $8,453         $-        $(768)   $7,685
      Total Reportable Segments    $48,010    $12,343      $(7,845)  $52,508
      Corporate and Other          $(2,192)        $-         $(71)  $(2,263)
    Total Segment Operating Income $45,818    $12,343      $(7,916)  $50,245


                                            Three Months Ended December 31,
                                                          2007
    Segment Operating Income (Loss)
    Excluding Restructuring Charges and
    an Adjustment for Benefit Changes:
                                               As     Erie/Mexico
                                            Reported    Transfer     Total

      Healthcare                             $29,343     $1,285     $30,628
      Life Sciences                           $2,337         $-      $2,337
      STERIS Isomedix Services                $7,025         $-      $7,025
      Total Reportable Segments              $38,705     $1,285     $39,990
      Corporate and Other                    $(5,243)               $(5,243)
    Total Segment Operating Income           $33,462     $1,285     $34,747


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