MENTOR, Ohio, Nov. 9 /PRNewswire-FirstCall/ -- STERIS Corporation today announced financial results for its fiscal 2006 second quarter ended September 30, 2005. Fiscal 2006 second quarter revenues increased 7% to $284.4 million, compared with $264.8 million in the second quarter of fiscal 2005, driven by growth in the Healthcare and Isomedix segments. Operating income was $27.0 million compared with $30.9 million in the fiscal 2005 quarter. Net income was $16.4 million compared with net income of $18.9 million in the second quarter of fiscal 2005. Earnings per diluted share were $0.24 compared with $0.27 per diluted share in the same period last year.
“While revenue growth this quarter met our expectations, increased raw material costs, fuel prices and higher operating expenses led to a disappointing bottom line,” said Les C. Vinney, STERIS’s president and chief executive officer. “As we move into the second half of our fiscal year, we anticipate that an increase in organic growth, combined with actions being taken to improve efficiencies across the Company, will result in improved profitability. In particular, within our Life Sciences segment, with the divestiture of the freeze dryer product line in October and the ongoing implementation of improvements to our water purification product line, we anticipate significantly better earnings performance.”
Segment Results
Healthcare revenues for the second quarter increased 8% to $194.0 million driven by increased capital equipment and service revenues, and acquisitions. While growth in sterile processing equipment was strong, it was partially offset by soft demand in surgical support equipment. The Company anticipates that new products will help drive increased surgical equipment sales in the second half of the year. Revenues related to acquired businesses contributed approximately 4% to the segment revenue increase. Healthcare segment operating profit was $22.8 million for the quarter, compared with $27.3 million in the second quarter of last year. The decline in segment operating profit is primarily attributable to lower gross margins, reflecting increased raw material costs, and increased operating expenses associated with the acquired businesses.
Life Sciences second quarter revenues were $58.4 million, a decline of 5% compared with $61.4 million in the second quarter of fiscal 2005. The decline in revenues largely reflects the divestiture of the Detach product line, which occurred during the third quarter of fiscal 2005, and lower demand for capital equipment in Europe, primarily related to the Company’s freeze dryer product line. Excluding the impact of the divestiture of the freeze dryer product line, the Company noted an increase in order backlog for capital equipment and anticipates positive revenue comparisons in the second half. Life Sciences recorded an operating loss of $0.7 million in the quarter, compared with a loss of $0.8 million in the same period last year.
Second quarter revenues for Isomedix Services increased 32% to $32.0 million, compared with the prior year second quarter, largely reflecting the acquisition of certain assets of the Cosmed Group. Revenues associated with the former Cosmed facilities contributed approximately 27% to the segment revenue increase. Segment operating profit was $5.0 million compared with $4.4 million in the prior year quarter. A lower segment operating margin rate primarily reflected increased operating expenses associated with the acquired facilities and a change in revenue mix.
Cash Flow
Cash provided by operations in the second quarter of fiscal 2006 was $43.2 million, compared with $19.1 million in the second quarter of fiscal 2005, reflecting lower working capital levels. Free cash flow (see note below) was $28.6 million, compared with free cash flow of $4.1 million in the fiscal 2005 quarter, reflecting the increased cash provided by operations. Capital expenditures in the second quarter of fiscal 2006 were $14.6 million, compared with $15.0 million in last year’s second quarter.
Outlook
On October 31, 2005, the Company announced the closing of the sale of its freeze dryer product line, which had revenues of approximately $40 million in fiscal year 2005. The freeze dryer product line sale will be accounted for as a discontinued operation and the results of the product line will be disclosed separately on the consolidated statements of income. It is anticipated that the sale of this product line will result in a pre-tax gain of approximately $4 million ($0.06 per diluted share) in the third quarter of fiscal 2006. The impact of the accounting treatment and the sale, including the gain, is reflected in the outlook information provided below.
Based upon first half results and current anticipated trends for the remainder of the fiscal year, the Company expects revenue growth to be 6% to 8% for the fiscal 2006 full year and third quarter, compared with the same periods in fiscal 2005. Fiscal 2006 earnings, including a gain of approximately $0.06 per diluted share from the sale of the freeze dryer product line, are anticipated to be in the range of $1.30 to $1.34 per diluted share for the full fiscal year and $0.38 to $0.40 per diluted share for the fiscal 2006 third quarter.
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” and the conference leader’s name, “Aidan Gormley.”
For those unable to listen to the conference call live, a replay will be available from 12:00 p.m. Eastern time on November 9, 2005, until 5:00 p.m. Eastern time on November 23, 2005, 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
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’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 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.
Note: Free cash flow is a non-GAAP number used by the Company as a measure to gauge its ability to invest for growth. Free cash flow is defined as operating cash flow less purchases of property, plant, equipment, and intangibles, net (capital expenditures). 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,” 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, 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 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, 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 foreign currencies of countries where the Company does a sizeable amount of business, (e) the possibility of reduced demand, or reductions in the rate of growth in demand, for the Company’s products and services, and (f) the possibility that the anticipated gain on the sale of the freeze dryer product line may not be realized.
STERIS Corporation Consolidated Condensed Statements of Income (In thousands, except per share data) Three Months Ended Six Months Ended September 30, September 30, 2005 2004 2005 2004 (Unaudited) (Unaudited)(Unaudited)(Unaudited) Revenues $284,370 $264,846 $561,068 $519,643 Cost of revenues 168,137 153,358 327,064 298,263 Gross profit 116,233 111,488 234,004 221,380 Operating expenses: Selling, general, and administrative 79,165 71,944 160,958 144,510 Research and development 10,022 8,677 18,751 17,988 89,187 80,621 179,709 162,498 Income from operations 27,046 30,867 54,295 58,882 Non-operating expense, net 937 685 231 1,386 Income before income tax expense 26,109 30,182 54,064 57,496 Income tax expense 9,694 11,289 20,317 20,986 Net income $16,415 $18,893 $33,747 $36,510 Earnings per common share (EPS) data: Basic earnings per common share $0.24 $0.27 $0.49 $0.53 Diluted earnings per common share 0.24 0.27 0.49 0.52 Cash dividends declared per common share outstanding 0.04 - 0.08 - Weighted average number of common shares outstanding used in EPS computation: Basic number of common shares outstanding 68,196 69,010 68,661 69,243 Diluted number of common shares outstanding 68,979 69,744 69,432 70,093 STERIS Corporation Consolidated Condensed Balance Sheets (In thousands) September 30, March 31, 2005 2005 Assets (Unaudited) Current assets: Cash and cash equivalents $46,382 $26,179 Accounts receivable, net 228,141 281,401 Inventories, net 114,721 96,197 Other current assets 19,444 16,355 Total Current Assets 408,688 420,132 Property, plant, and equipment, net 408,285 413,578 Goodwill and intangible assets, net 337,940 350,156 Other assets 1,853 1,856 Total Assets $1,156,766 $1,185,722 Liabilities and Shareholders’ Equity Current liabilities: Accounts payable $62,432 $67,550 Other current liabilities 142,452 154,265 Total Current Liabilities 204,884 221,815 Long-term debt 105,668 104,274 Other liabilities 104,826 103,995 Shareholders’ equity 741,388 755,638 Total Liabilities and Shareholders’ Equity $1,156,766 $1,185,722 STERIS Corporation Segment Data (In thousands) Three Months Ended Six Months Ended September 30, September 30, 2005 2004 2005 2004 (Unaudited)(Unaudited)(Unaudited)(Unaudited) Segment Revenues: Healthcare $193,992 $179,218 $379,752 $347,632 Life Sciences 58,378 61,382 116,810 123,330 STERIS Isomedix Services 32,000 24,246 64,506 48,681 Total Segment Revenues $284,370 $264,846 $561,068 $519,643 Segment Operating Income (Loss): Healthcare $22,794 $27,284 $46,037 $52,098 Life Sciences (713) (800) (3,044) (2,553) STERIS Isomedix Services 4,965 4,383 11,302 9,337 Total Segment Operating Income $27,046 $30,867 $54,295 $58,882 Fiscal Year 2005 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Segment Revenues: Healthcare $168,414 $179,218 $197,251 $218,996 Life Sciences 61,948 61,382 62,213 65,531 STERIS Isomedix Services 24,435 24,246 24,925 31,186 Total Segment Revenues $254,797 $264,846 $284,389 $315,713 Segment Operating Income (Loss): Healthcare $24,814 $27,284 $35,244 $41,051 Life Sciences (1,753) (800) 15 (848) STERIS Isomedix Services 4,954 4,383 4,653 5,996 Total Segment Operating Income $28,015 $30,867 $39,912 $46,199 Fiscal 2005 segment revenues and operating results have been reclassified from previously reported amounts to conform with the current period’s presentation, reflecting the change in the reporting of the service business. STERIS Corporation Consolidated Condensed Statements of Cash Flows (In thousands) Six Months Ended Three Months Ended September 30, September 30, 2005 2004 2005 2004 (Unaudited)(Unaudited)(Unaudited)(Unaudited) Operating Activities: Net income $33,747 $36,510 $16,415 $18,893 Non-cash items 29,003 33,749 15,874 15,851 Working capital adjustments 21,569 (8,883) 10,937 (15,610) Net cash provided by operating activities 84,319 61,376 43,226 19,134 Investing Activities: Purchases of property, plant, equipment, and intangibles, net (22,737) (25,535) (14,593) (14,990) Investments in businesses, net of cash acquired (1,504) (52,923) (1,504) (52,923) Net cash used in investing activities (24,241) (78,458) (16,097) (67,913) Financing Activities: Proceeds (payments) under credit facilities, net 1,700 (2,158) (19,900) 3,089 Payments on long-term obligations and capital leases, net (1,932) (2,104) (257) (986) Repurchases of common shares (39,394) (33,868) - (5,719) Cash dividends paid to common shareholders (5,494) - (2,727) - Stock options and other equity transactions, net 5,775 7,589 4,389 4,943 Net cash used in financing activities (39,345) (30,541) (18,495) 1,327 Effect of exchange rate changes on cash and cash equivalents (530) - 295 311 Increase (decrease) in cash and cash equivalents 20,203 (47,623) 8,929 (47,141) Cash and cash equivalents at beginning of period 26,179 80,408 37,453 79,926 Cash and cash equivalents at end of period $46,382 $32,785 $46,382 $32,785 Six Months Ended September 30, 2005 2004 (Unaudited) (Unaudited) Calculation of Free Cash Flow: Cash flows from operating activities $84,319 $61,376 Purchases of property, plant, equipment, and intangibles, net 22,737 25,535 Free Cash Flow $61,582 $35,841 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). Free cash flow is a non-GAAP measure used by the Company to gauge its ability to invest for growth. STERIS’s calculation of free cash flow may vary from other companies.
STERIS Corporation
CONTACT: Aidan Gormley, Senior Director, Corporate Communications andInvestor Relations of STERIS Corporation, +1-440-392-7607
