STERIS plc (NYSE: STE) (“STERIS” or the “Company”) today announced
financial results for its fiscal 2020 third quarter ended December
31, 2019. Revenue as reported for the quarter increased 11%
to $774.3 million compared with $696.2 million in the third quarter
of fiscal 2019, with growth across all segments. Constant currency
organic revenue (see Non-GAAP Financial Measures) growth was 12%
for the third quarter of fiscal 2020.
“Our performance this year has continued to exceed our
expectations,” said Walt Rosebrough, President and Chief Executive
Officer of STERIS. “Underlying Customer demand for our products and
services remains strong. Based on our outperformance to date and
expectations for the fourth quarter, we are increasing our guidance
for revenue, earnings and cash flow for the full fiscal year.”
As reported, net income for the third quarter was $104.9
million, or $1.23 per diluted share, compared with net income of
$47.9 million, or $0.56 per diluted share in the third quarter of
fiscal 2019. Adjusted net income (see Non-GAAP Financial
Measures) for the third quarter of fiscal 2020 was $124.0 million,
or $1.45 per diluted share, compared with adjusted net income for
the previous year’s third quarter of $107.2 million or $1.26 per
diluted share.
Third Quarter Segment Results
Healthcare Products revenue as reported grew 8%
in the quarter to $365.4 million compared with $338.3 million in
the third quarter of fiscal 2019, driven by 13% growth in
consumable revenue, 9% growth in service revenue and 3% growth in
capital equipment revenue. Constant currency organic revenue growth
for Healthcare Products was 8% during the quarter. Healthcare
Products operating income was $89.8 million compared with $82.8
million in last year’s third quarter primarily due to the increase
in volume and favorable revenue mix.
Fiscal 2020 third quarter revenue for Applied
Sterilization Technologies increased 14% as reported to
$156.3 million compared with $136.8 million in the same period last
year. Constant currency organic revenue increased 15%, primarily
driven by increased volume from the segment’s core medical device
Customers. Segment operating income increased to $65.5 million in
the third quarter of fiscal 2020 compared with operating income of
$54.8 million in the same period last year, due primarily to
revenue growth.
Healthcare Specialty Services as reported
revenue grew 13% in the quarter to $143.9 million compared with
$127.8 million in the third quarter of fiscal 2019. Constant
currency organic revenue growth was 14%. Healthcare Specialty
Services operating income was $15.4 million compared with $16.0
million in last year’s third quarter, benefiting from the increase
in revenue, which was more than offset by investments being made to
add capacity in anticipation of continuing demand.
Life Sciences third quarter revenue as reported
grew 16% to $108.8 million compared with $93.5 million in the third
quarter of fiscal 2019, driven by 36% growth in capital equipment
revenue, 13% growth in consumable revenue and 6% growth in service
revenue. Constant currency organic revenue grew 17% in the quarter.
Operating income was $37.7 million compared with $33.1 million in
the prior year’s third quarter, primarily driven by the increase in
volume.
Cash FlowNet cash provided by operations for
the first nine months of fiscal 2020 was $391.3 million, compared
with $360.6 million in fiscal 2019. Free cash flow (see Non-GAAP
Financial Measures) for the first nine months of fiscal 2020 was
$238.1 million compared with $252.9 million in the prior year
period. The decline, as anticipated, in free cash flow is primarily
due to increased capital spending.
Dividend AnnouncementSTERIS’s Board of
Directors has approved a quarterly interim dividend of $0.37 per
share. The dividend is payable March 26, 2020 to shareholders of
record at the close of business on February 25, 2020.
Fiscal 2020 OutlookBased on current performance
and expectations for the full fiscal year, the Company is updating
its prior outlook. Constant currency organic revenue growth is now
expected to be approximately 9% compared with 7.5-8.5% previously.
Reflecting December 31, 2019 forward rates, the Company now expects
that currency movements will negatively impact as reported revenue
by approximately $20 million in fiscal 2020. Adjusted earnings per
diluted share are now anticipated to be at the high-end of the
previously communicated range of $5.50 - $5.65.
Capital spending is anticipated to be approximately $240 million
and free cash flow is expected to be approximately $340 million,
both updated to reflect the timing of capital projects.
Conference CallAs previously announced, STERIS
management will host a conference call tomorrow, February 11, 2020
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
1-833-535-2199 in the United States or 1-412-902-6776
internationally, then asking to join the conference call for STERIS
plc.
For those unable to listen to the conference call live, a replay
will be available beginning at 12:00 p.m. Eastern Time on February
11, 2020, either over the Internet at www.steris-ir.com or via
phone. To access the replay of the call, please use the
access code 10138127 and dial 1-877-344-7529 in the United States
or 1-412-317-0088 internationally.
About STERISSTERIS’s MISSION IS TO HELP OUR
CUSTOMERS CREATE A HEALTHIER AND SAFER WORLD by providing
innovative healthcare and life science product and service
solutions around the globe. For more information, visit
www.steris.com.
Investor Contact:Julie Winter, Senior Director,
Investor Relations and Corporate
CommunicationsJulie_Winter@steris.com
+1 440 392 7245
Media Contact:
Stephen Norton, Senior Director, Corporate
CommunicationsStephen_Norton@steris.com+1 440 392 7482
Non-GAAP Financial MeasuresAdjusted net income,
free cash flow and constant currency organic revenue are non-GAAP
measures that may be used from time to time and should not be
considered replacements for GAAP results. Non-GAAP financial
measures are presented in this release with the intent of providing
greater transparency to supplemental financial information used by
management and the Board of Directors in their financial analysis
and operational decision making. These amounts are disclosed so
that the reader has the same financial data that management uses
with the belief that it will assist investors and other readers in
making comparisons to our historical operating results and
analyzing the underlying performance of our operations for the
periods presented. The Company believes that the presentation
of these non-GAAP financial measures, when considered along with
our GAAP financial measures, provides a more complete understanding
of the factors and trends affecting our business than could be
obtained absent this disclosure.
Adjusted net income excludes the amortization of intangible
assets acquired in business combinations, acquisition-related
transaction costs, integration costs related to acquisitions, the
re-measurement of deferred taxes and taxation of prior unremitted
earnings impacts of the TCJA, and certain other unusual or
non-recurring items. STERIS believes this measure is useful
because it excludes items that may not be indicative of or are
unrelated to our core operating results and provides a baseline for
analyzing trends in our underlying businesses.
The Company defines free cash flow as 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 believes that free cash
flow is a useful measure of the Company’s ability to fund future
principal debt repayments and growth outside of core operations,
pay cash dividends, and repurchase ordinary shares.
To measure the percentage organic revenue growth, the Company
removes the impact of significant acquisitions and divestitures
that affect the comparability and trends in revenue. To measure the
percentage constant currency organic revenue growth, the impact of
changes in currency exchange rates and acquisitions and
divestitures that affect the comparability and trends in revenue
are removed. The impact of changes in currency exchange rates
is calculated by translating current year results at prior year
average currency exchange rates.
Because non-GAAP financial measures are not standardized, it may
not be possible to compare these financial measures with other
companies’ non-GAAP financial measures having the same or similar
names. These adjusted financial measures should not be considered
in isolation or as a substitute for reported sales, gross profit,
operating income, net earnings and net earnings per diluted share,
the most directly comparable GAAP financial measures. These
non-GAAP financial measures are an additional way of viewing
aspects of the Company’s operations that, when viewed with GAAP
results and the reconciliations to corresponding GAAP financial
measures below, provide a more complete understanding of the
business. The Company strongly encourages investors and
shareholders to review its financial statements and publicly-filed
reports in their entirety and not to rely on any single financial
measure.
Forward-Looking StatementsThis release and the
referenced conference call may contain statements concerning
certain trends, expectations, forecasts, estimates, or other
forward-looking information affecting or relating
to STERIS 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 the statement
is 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,” “orders,” “backlog,” “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 in STERIS’s other securities
filings, including Item 1A of our Annual Report on Form 10-K
for the year ended March 31, 2019. Many of these important factors
are outside of STERIS’s control. No assurances can be provided as
to any result or the timing of any outcome regarding matters
described in STERIS’s securities filings or otherwise with respect
to any regulatory action, administrative proceedings, government
investigations, litigation, warning letters, cost reductions,
business strategies, earnings or revenue trends or future financial
results. References to products are summaries only and should not
be considered the specific terms of the product clearance or
literature. Unless legally required, STERIS 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) STERIS's ability to achieve the expected benefits
regarding the accounting and tax treatments of the redomiciliation
to Ireland (“Redomiciliation”), (b) operating costs, Customer loss
and business disruption (including, without limitation,
difficulties in maintaining relationships with employees,
Customers, clients or suppliers) being greater than expected
following the Redomiciliation, (c) STERIS’s ability to meet
expectations regarding the accounting and tax treatment of the Tax
Cuts and Jobs Act (“TCJA”) or the possibility that anticipated
benefits resulting from the TCJA will be less than estimated,
(d) changes in tax laws or interpretations that could increase
our consolidated tax liabilities, including changes in tax laws
that would result in STERIS being treated as a domestic corporation
for United States federal tax purposes, (e) the potential for
increased pressure on pricing or costs that leads to erosion of
profit margins, (f) the possibility that market demand will
not develop for new technologies, products or applications or
services, or business initiatives will take longer, cost more or
produce lower benefits than anticipated, (g) the possibility
that application of or compliance with laws, court rulings,
certifications, regulations, regulatory actions, including without
limitation any of the same relating to FDA, EPA or other regulatory
authorities, government investigations, the outcome of any pending
or threatened FDA, EPA or other regulatory warning notices,
actions, requests, inspections or submissions, or other
requirements or standards may delay, limit or prevent new product
or service introductions, affect the production, supply and/or
marketing of existing products or services or otherwise affect
STERIS’s performance, results, prospects or value, (h) the
potential of international unrest, economic downturn or effects of
currencies, tax assessments, tariffs and/or other trade barriers,
adjustments or anticipated rates, raw material costs or
availability, benefit or retirement plan costs, or other regulatory
compliance costs, (i) the possibility of reduced demand, or
reductions in the rate of growth in demand, for STERIS’s products
and services, (j) the possibility of delays in receipt of
orders, order cancellations, or delays in the manufacture or
shipment of ordered products or in the provision of services,
(k) 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 STERIS’s businesses, industry or initiatives
including, without limitation, those matters described in our
Annual Report on Form 10-K for the year ended March 31, 2019, and
other securities filings, may adversely impact STERIS’s
performance, results, prospects or value, (l) the impact on
STERIS and its operations, or tax liabilities, of Brexit or the
exit of other member countries from the EU, and the Company’s
ability to respond to such impacts, (m) the impact on STERIS
and its operations of any legislation, regulations or orders,
including but not limited to any new trade or tax legislation,
regulations or orders, that may be implemented by the U.S.
administration or Congress, or of any responses thereto,
(n) the possibility that anticipated financial results or
benefits of recent acquisitions, or of STERIS’s restructuring
efforts, or of recent divestitures, or of restructuring plans
will not be realized or will be other than anticipated, and
(o) the effects of contractions in credit availability, as
well as the ability of STERIS’s Customers and suppliers to
adequately access the credit markets when needed.
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