STERIS fourth quarter revenue increases 14% to $377.8 million

STERIS Corporation (NYSE:STE) today announced financial results for its fiscal 2011 fourth quarter ended March 31, 2011. Fiscal 2011 fourth quarter revenue increased 14% to $377.8 million compared with $332.1 million in the fourth quarter of fiscal 2010, with growth in all three business segments.

“Our fiscal 2011 results reinforce the underlying strength of our business as we delivered another solid year”

As reported, fiscal 2011 fourth quarter operating income was $57.5 million, or 15.2% of sales compared with $51.4 million, or 15.5% of sales in the fourth quarter of fiscal 2010. Excluding restructuring, adjusted operating income for the fourth quarter of fiscal 2011 was $58.2 million or 15.4% of sales compared with $56.5 million, or 17.0% of sales excluding restructuring last year. Adjusted operating income improved year-over-year due to increased volumes while operating margin percentage declined due to lower gross margins and higher SG&A expenses.

As reported, fiscal 2011 fourth quarter net income was $39.0 million, or $0.65 per diluted share, compared with net income of $29.8 million, or $0.50 per diluted share in the fourth quarter of fiscal 2010. Fiscal 2011 fourth quarter net income includes restructuring expenses and the tax rate impact from the SYSTEM 1 Rebate Program. The net impact of these two items is a benefit of $0.04 per diluted share during the quarter. Adjusted net income for the fourth quarter of fiscal 2011 was $36.4 million, or $0.61 per diluted share compared with adjusted net income in the fourth quarter of fiscal 2010 of $33.2 million, or $0.55 per diluted share, excluding restructuring.

"Our fiscal 2011 results reinforce the underlying strength of our business as we delivered another solid year," said Walt Rosebrough, President and Chief Executive Officer of STERIS. "Our expectations for fiscal 2012 include a substantial increase in revenue from SYSTEM 1E capital sales along with more routine growth in the rest of the business. We have committed to several investments and have some cost headwinds that, in combination with the SYSTEM 1 transition, will impact our profitability, but we plan to improve revenue and earnings next year."

Segment Results

Healthcare revenue in the quarter grew 16% to $274.1 million compared with $235.6 million in the fourth quarter of fiscal 2010. Capital equipment revenue grew 34%, with double digit growth in both surgical and infection control products. Consumable revenue grew 4%, as strength across the rest of the business more than offset continuing declines in S20 Sterilant volumes. Service revenue declined 3% as it continued to be impacted by the SYSTEM 1 transition. Operating income was $40.8 million compared with $37.8 million in last year's fourth quarter. Excluding restructuring charges during both periods, adjusted segment operating income was $41.3 million in the fourth quarter of fiscal 2011 and $42.4 million in the prior year. The decline in adjusted operating income year over year was primarily due to a reduction in gross margin and increased commissions and GPO fees as a result of the higher sales volumes.

Life Sciences fourth quarter revenue increased 9% to $64.1 million compared with $58.8 million in the fourth quarter of fiscal 2010. Revenue growth was driven by a 14% increase in capital equipment, 10% growth in consumables and 2% improvement in service revenue. Life Sciences operating income was $10.0 million compared with $7.5 million in the prior year fourth quarter. Excluding restructuring charges during the fourth quarter of fiscal 2010, segment operating income was $8.1 million. The increase in operating income was driven by improved volumes and higher gross margins.

Fiscal 2011 fourth quarter revenue for Isomedix Services was $38.5 million compared with $35.7 million in the same period last year, an increase of 8%. Revenue benefitted from increased volumes from core medical device Customers. Operating income was $9.0 million in the quarter compared with $8.4 million in the fourth quarter of last year.

Full Year Results

As reported, fiscal 2011 revenue was $1.21 billion, compared with $1.26 billion in fiscal 2010. Adjusted revenue for fiscal 2011 was $1.31 billion, excluding the impact of the SYSTEM 1 Rebate Program.

As reported, fiscal 2011 operating income was $85.2 million compared with $203.7 million in fiscal 2010. Adjusted operating income, excluding the impact of the SYSTEM 1 Rebate Program, the proposed SYSTEM 1 class action litigation settlement and restructuring expenses, was $216.4 million in fiscal 2011, compared with $208.6 million in fiscal 2010, excluding restructuring expenses.

As reported, fiscal 2011 net income was $51.3 million, or $0.85 per diluted share, compared with net income of $128.5 million, or $2.16 per diluted share in fiscal 2010. Adjusted net income excluding the impact of the SYSTEM 1 Rebate Program, proposed class action litigation settlement and restructuring expenses was $131.7 million or $2.19 per diluted share in fiscal 2011, compared with $131.3 million, or $2.21 per diluted share in fiscal 2010, excluding restructuring expenses.

In order to provide meaningful comparative analysis, the Company has excluded several items in the adjusted financial information provided above.

Cash Flow

Net cash provided by operations for fiscal 2011 was $117.7 million, compared with $224.9 million last year. Free cash flow for fiscal 2011 was $41.6 million, compared with $184.0 million in the prior year. The decline in free cash flow was driven by increased working capital requirements, primarily due to inventory build of SYSTEM 1E, which totaled $44 million at the end of the year, and higher accounts receivable balances driven by the timing of shipments. In addition, capital spending increased significantly during the year, driven in part by the timing of cobalt purchases for Isomedix, the purchase of two previously leased Isomedix facilities and costs related to the consolidation projects in the United States and Europe.

During the quarter, the Company repurchased 295,589 shares of its common stock at an average price of $33.75 per share for a total amount of $10.0 million. Approximately $174 million remains available for additional purchases under the current share repurchase authorization. For the full year, the Company repurchased 925,848 shares for a total amount of $29.5 million.

Dividend Announcement

The Company also announced today that STERIS's Board of Directors has authorized a quarterly dividend of $0.15 per common share. The dividend is payable June 28, 2011 to shareholders of record at the close of business on June 7, 2011.

Outlook

Based upon current trends, the Company expects fiscal 2012 revenue growth to be in the range of 8-10%, and earnings per diluted share in the range of $2.25 to $2.45 for the full fiscal year. This outlook reflects certain key assumptions, some of which are listed below:

• Healthcare segment revenue growth is expected to be in the low-double digits.
• Approximately 5,000 - 8,000 SYSTEM 1E units are to be shipped in the fiscal year.
• Life Sciences segment revenue is expected to be flat.
• Isomedix segment revenue growth is expected to be in the mid-single digits.
• The Company has assumed the average forward exchange rates for the U.S. dollar and key international currencies as of March 31, 2011.
• The Company has assumed a modest increase in raw material costs.
• Excludes restructuring expenses from the Company's ongoing efficiency efforts.
• EBIT as a percent of revenue is anticipated to be approximately 16%.
• The effective tax rate is anticipated to be in the range of 35-36%.

For the full fiscal year 2012, free cash flow is anticipated to be approximately $190 million excluding the SYSTEM 1 Rebate Program and proposed class action litigation settlement, or $110 million as reported including those items. Capital expenditures are anticipated to be approximately $70 million.

Source STERIS Corporation