Revenue growth of 7%, with growth in all three segments
Earnings outlook increased to upper end of range
Board approves dividend of $0.19 per share
Mentor, Ohio (February 6, 2013) - STERIS Corporation (NYSE: STE) today announced financial results for its fiscal 2013 third quarter ended December 31, 2012. Fiscal 2013 third quarter revenue increased to $380.4 million compared with $355.2 million in the third quarter of fiscal 2012, with growth in all three business segments. Net income increased to $48.1 million, or $0.82 per diluted share, compared with net income of $33.6 million, or $0.58 per diluted share in the third quarter of fiscal 2012.
Adjusted net income for the third quarter of fiscal 2013 was $34.3 million, or $0.58 per diluted share compared with adjusted net income of $35.3 million, or $0.60 per diluted share in the prior year period. Adjusted net income and adjusted diluted earnings per share exclude amortization of purchased intangible assets and acquisition related transaction and integration costs. Both measures also exclude a favorable $15.8 million pre-tax adjustment attributable to the SYSTEM 1 class action settlement liability as well as an $8.1 million tax benefit associated with our prior European restructuring effort, as well as certain other items. Please see the attached table for comparative analysis of these "non-GAAP financial measures" to as reported results.
"We are pleased with our performance in the quarter, as our growth strategies are beginning to show in our results," said Walt Rosebrough, President and Chief Executive Officer of STERIS Corporation. "The recent acquisitions are contributing nicely to our performance, and our integration plans are on-track. With organic revenue growth in the quarter, excluding SYSTEM 1E, and strong capital equipment backlog in both Healthcare and Life Sciences, we are heading into the fourth quarter with good momentum. As a result, we are increasing our expectations for revenue growth for fiscal 2013, and moving our adjusted diluted earnings per share outlook to $2.25-$2.35, which is the high end of our previous range."
Segment Results Healthcare revenue in the quarter increased 5% to $271.1 million compared with $259.1 million in the same period last year. Contributing to the quarter, consumable revenue grew 37% and service revenue grew 28%, while capital equipment revenue declined 17%, primarily due to the ramp-up of SYSTEM 1E unit sales during the prior year. Excluding SYSTEM 1E unit sales, capital equipment revenue was flat in the U.S. and declined internationally. The performance of the Healthcare consumable franchise reflected a combination of the acquisition of US Endoscopy and growth in other consumables offset by expected declines in S20 sterilant. Service revenue growth reflects the acquisitions of Spectrum and TRE.
As reported, Healthcare segment operating income was $45.5 million compared with $34.0 million in last year's third quarter. Adjusted segment operating income was $35.7 million in the third quarter of fiscal 2013 compared with $36.1 million in the same period last year. Please see the attached schedules for additional information, including reconciliations from these "non-GAAP financial measures" to as reported results. The decline in adjusted segment operating income year-over-year was the result of the expected decline in both S20 sterilant and SYSTEM 1E unit sales in the U.S.
Life Sciences third quarter revenue increased 16% to $65.0 million compared with $55.9 million in the third quarter of fiscal 2012. Contributing to growth, capital equipment increased 32%, consumable revenue grew 8% and service revenue increased 6%. Life Sciences operating income was $12.8 million compared with $10.3 million in the same period last year, driven primarily by the volume increases.
Fiscal 2013 third quarter revenue for Isomedix Services was $43.4 million compared with $39.6 million in the same period last year, an increase of 10%. Revenue benefitted from increased volumes from core medical device Customers as well as the acquisition of Biotest in March 2012. Operating income in the quarter declined slightly to $11.1 million compared with $11.8 million last year, as a result of the additional costs of new capacity the Company has brought online in the quarter.
Cash Flow Net cash provided by operations for the first nine months of fiscal 2013 was $180.9 million, compared with $112.8 million last year. Free cash flow (see note 1) for the first nine months of fiscal 2013 was $117.1 million, compared with $58.6 million in the prior year. The improvement in free cash flow is primarily due to improvements in working capital management and the cash benefit from the previously-mentioned tax benefit related to European restructuring.
Dividend Announcement The Company also announced today that STERIS's Board of Directors has authorized a quarterly dividend of $0.19 per common share. The dividend is payable March 27, 2013 to shareholders of record at the close of business on February 27, 2013.
O utlook Based on the strength of results year-to-date and expectations for the fourth quarter, the Company now anticipates that revenue growth will be 5% for the full year compared with prior expectations of 3-4% growth. The increase in revenue expectations is primarily due to strength in the Healthcare segment, which is now anticipated to grow mid-single digits for the year compared with prior expectations of low-single digits. Adjusted earnings per diluted share are now anticipated to be in the range of $2.25 to $2.35 including a $0.03 negative impact from the Medical Device Excise Tax, compared with prior expectations of $2.15 to $2.35 which did not include the impact of the Medical Device Excise Tax.
The Company's outlook for fiscal 2013 reflects certain key assumptions, some of which are listed below:
The Company has assumed the average forward exchange rates for the U.S. dollar and key international currencies as of December 31, 2012.
EBIT as a percent of revenue is anticipated to be approximately 15% on an adjusted basis.
The effective adjusted tax rate is anticipated to be approximately 35%.
For the full fiscal year 2013, free cash flow (see note 1) is now anticipated to be approximately $150 million (increased from $130 million) excluding the SYSTEM 1 Rebate Program and class action settlement, or $130 million (increased from $100 million) including those items. Capital expenditures are anticipated to be approximately $95 million, as the Company is investing in several major projects that are designed to improve quality, reduce cost and add value to our current product offering.
Conference Call
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 1-800-388-4950 in the United States and Canada, or 1-203-369-3694 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 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, 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.
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 made, 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 or the 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 (including without limitation the settlement of the SYSTEM 1 class action litigation and the regulatory matters related to SYSTEM 1E or its accessories). 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 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, certifications, regulations, regulatory actions, including without limitation those relating to FDA warning notices or letters, government investigations, the April 20, 2010 consent decree, the SYSTEM 1E device, 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, including without limitation SYSTEM 1E and accessories thereto, 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, and 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, 2012, and other securities filings.
Contact: Julie Winter, Director, Investor Relations at 440-392-7245.
STE 3Q13 Financial Tables
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