Solid organic revenue growth across all segments
Acquired businesses continue to deliver as anticipated
Mentor, Ohio (October 30, 2013) - STERIS Corporation (STE) today announced financial results for its fiscal 2014 second quarter ended September 30, 2013. As reported, fiscal 2014 second quarter revenue increased 8% to $383.8 million compared with $356.3 million in the second quarter of fiscal 2013. As reported, net income was $29.7 million, or $0.50 per diluted share, compared with net income of $40.1 million, or $0.68 per diluted share in the second quarter of fiscal 2013. Included in the financial results for the second quarter of fiscal 2013 was a $21.5 million pre-tax benefit related to the SYSTEM 1 Rebate Program liability, which has been excluded in the adjusted results provided below.
On an adjusted basis, revenue for the second quarter of fiscal 2014 increased 14% compared with adjusted revenue of $335.9 million in the second quarter of fiscal 2013. Adjusted net income for the second quarter of fiscal 2014 was $32.6 million, or $0.55 per diluted share, compared with adjusted net income of $30.9 million, or $0.53 per diluted share in the prior year. Please refer to the attached schedules for additional information, including reconciliations of adjusted "non-GAAP financial measures" to reported results.
"We are pleased that our performance returned to expectations this quarter, reflecting the continued growth in our end-markets and success with new products," said Walt Rosebrough, President and Chief Executive Officer of STERIS. "With solid organic growth across all segments and strong backlog, we have confidence in our ability to produce a strong second half of the year. Due largely to the timing of investments for our in-sourcing projects, we now anticipate that earnings will be in the lower half of our previously provided range of $2.47 to $2.60 for the full fiscal year."
As reported, Healthcare revenue in the quarter was $277.3 million compared with $256.8 million in the second quarter of fiscal 2013. Excluding the impact of the SYSTEM 1 Rebate Program, adjusted Healthcare revenue increased by 17% during the second quarter. Contributing to revenue growth for the quarter, consumable revenue increased 26% and service revenue grew 34%, both driven by recent acquisitions and low-single digit organic growth. Capital equipment revenue grew 3% with growth in both infection prevention and surgical solutions. As reported, segment operating income was $25.9 million compared with $42.1 million in last year`s second quarter. Adjusted segment operating income increased 14% to $30.3 million in the second quarter of fiscal 2014 compared with $26.7 million in the same period last year. The increase in adjusted segment operating income year-over-year was primarily driven by acquisitions and increased volume, somewhat offset by the Medical Device Excise Tax, increased spending for research and development, and investments in in-sourcing.
Life Sciences second quarter revenue increased 7% to $58.4 million compared with $54.6 million in the second quarter of fiscal 2013. Contributing to the quarter, capital equipment revenue increased 13%, consumable revenue grew 8% and service revenue was flat. Life Sciences operating income was $14.0 million compared with $10.5 million in the same period last year. The improvement in operating income is primarily attributable to improved gross margins, mainly due to favorable product mix, and improved operating leverage.
Fiscal 2014 second quarter revenue for Isomedix Services increased 7% to $47.4 million compared with $44.3 million in the second quarter of fiscal 2013. Revenue benefited from increased volumes from core medical device Customers. Operating income increased to $13.7 million in the quarter compared with $12.7 million in the second quarter of last year, primarily due to the increased volume.
Net cash provided by operations for the first six months of fiscal 2014 was $80.0 million, compared with $112.0 million in the same period last year. Free cash flow (see note 1) for the first half of fiscal 2014 was $32.9 million, compared with $67.0 million in the first half of last year. The decline in free cash flow is primarily due to payments for the Company`s annual incentive compensation program which did not occur in fiscal 2013, as well as the impact of strong working capital improvements in the prior year.
The Company also announced today that STERIS`s Board of Directors has authorized a quarterly dividend of $0.21 per common share. The dividend is payable December 18, 2013 to shareholders of record at the close of business on November 20, 2013.
Based upon current trends and performance year-to-date, the Company`s outlook for revenue is unchanged at 8-10% growth for fiscal 2014 when compared with adjusted revenue in fiscal 2013. Adjusted earnings per diluted share are now anticipated to be in the lower half of the previously provided range of $2.47 to $2.60 for the full fiscal year. This outlook reflects certain key assumptions, some of which are listed below:
Healthcare segment revenue is expected to grow low-double digits.
Life Sciences segment revenue is expected to grow mid-single digits.
Isomedix segment revenue is expected to grow mid-single digits.
The Company has assumed the average forward exchange rates for the U.S. dollar and key international currencies as of September 30, 2013.
Adjusted EBIT as a percent of revenue is anticipated to be approximately 15.5%.
The adjusted effective tax rate is anticipated to be in the range of 34-35%.
For the full fiscal year 2014, free cash flow (see note 1) is now anticipated to be approximately $130 million, compared with prior expectations of $145 million. The change in free cash flow expectations is primarily due to increased working capital requirements. The Company`s expectations for capital expenditures are unchanged at approximately $90 million, as the Company is continuing to invest in projects within its facilities that are designed to improve quality, reduce cost and add value to the current product offering.
In conjunction with this 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- 800-369-8428 in the United States and Canada, and 1-773-799-3378 internationally, then referencing the password "STERIS".
For those unable to listen to the conference call live, a replay will be available beginning at 12:00 p.m. Eastern time today, either over the Internet at www.steris-ir.com or via phone by calling 1- 800-677-9149 in the United States and Canada, or 1- 203-369-3408 internationally.
The mission of STERIS Corporation is to provide a healthier today and safer tomorrow through knowledgeable people and innovative infection prevention, decontamination and health science technologies, products and services. The Company has approximately 6,000 dedicated employees around the world working together to supply a broad array of solutions by offering a combination of equipment, consumables and services to healthcare, pharmaceutical, industrial and government Customers. 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 principal debt repayments and growth outside of core operations, repurchase common shares, and pay cash dividends. STERIS defines free cash flow as net cash flows from operating activities less purchases of property, plant, equipment and intangibles plus proceeds from the sale of property, plant, equipment and intangibles. STERIS`s calculation of free cash flow may vary from other companies. Please see the attached financial tables for a complete reconciliation of these non-GAAP numbers to the nearest GAAP information.
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This press release and the referenced conference call may contain statements concerning certain trends, expectations, forecasts, estimates, or other forward-looking information affecting or relating to the Company or its industry, products or activities 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 press release, and may be identified by the use of forward-looking terms such as "may," "will," "expects," "believes," "anticipates," "plans," "estimates," "projects," "targets," "forecasts," "outlook," "impact," "potential," "confidence," "improve," "optimistic," "deliver," "comfortable," "trend", 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 laws, government regulations, labeling or product approvals or the application or interpretation thereof. Other risk factors are described herein and 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 result or the timing of any outcome regarding matters described in this press release, the referenced conference call or otherwise with respect to any regulatory action, administrative proceedings, government investigations, litigation, warning letters, consent decree, rebate program, transition, cost reductions, business strategies, earnings or revenue trends or future financial results. References to products, the consent decree, the transition or rebate program, or the class action settlement, are summaries only and should not be considered the specific terms of the decree, settlement, program or product clearance or literature. 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 or costs that leads to erosion of profit margins, (b) the possibility that market demand will not develop for new technologies, products or applications or 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, certifications, regulations, regulatory actions, including without limitation those relating to FDA warning notices or letters, government investigations, the April 20, 2010 consent decree, the outcome of any pending FDA requests, inspections or submissions, or other requirements or standards may delay, limit or prevent new product introductions, affect the production and marketing of existing products or services or otherwise affect Company performance, results, prospects or value, (d) the potential of international unrest, economic downturn or effects of currencies, tax assessments, adjustments, or anticipated rates, raw material costs or availability, 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 growth, cost savings, new product acceptance, performance or approvals, or other results may not be achieved, or that transition, labor, competition, timing, execution, regulatory, governmental, or other issues or risks associated with our business, industry or initiatives including, without limitation, the consent decree, the transition from the SYSTEM 1 processing system and adjustments to related reserves, or those matters described in our Form 10-K for the year ended March 31, 2012 and other securities filings, may adversely impact Company performance, results, prospects or value, (g) the possibility that anticipated financial results or benefits of recent acquisitions will not be realized or will be other than anticipated, (h) the effect of the contraction in credit availability, as well as the ability of our Customers and suppliers to adequately access the credit markets when needed, and (i) those risks described in our securities filings including our Annual Report on Form 10-K for the year ended March 31, 2013, and other securities filings.
Contact: Julie Winter, Director, Investor Relations at 440-392-7245. STERIS 2Q14 Financials
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