Steris Corporation (STE)
F4Q10 (Qtr End 03/31/10) Earnings Call Transcript
May 6, 2010 10:00 am ET
Julie Winter – Director, IR
Mike Tokich – SVP & CFO
Walt Rosebrough – President & CEO
Daniel Owczarski – Avondale Partners
Bob Goldman – CL King
Jason Rodgers – Great Lakes Review
Joshua Zable – Natixis
Brad Evans – Heartland Funds
Jose Haresco – Brean Murray
Shawn Fitz – Stephens Inc.
Heidi Lawrence – George Weiss Associates
Previous Statements by STE
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Welcome to the STERIS fiscal 2010 fourth quarter conference call. All lines will remain in listen-only until the question-and-answer session. At that time instructions will be given should you wish to participate. At the request of STERIS, today's call will be recorded for instant replay. I would now like to introduce today's host, Julie Winter, Director, Investor Relations. Ma'am, you may begin.
Thank you, Sarah, and good morning everyone. It's my pleasure to welcome you to STERIS's fiscal 2010 fourth quarter and full year conference call. Thank you for taking the time to join us this morning.
Participating in the call this morning, are Walt Rosebrough, our President and CEO, and Mike Tokich, our Senior Vice President and CFO. If you haven't seen the copy of our earnings release, please visit our investor relations website at steris-ir.com, and just a few minutes of, a few words of caution before we begin.
This webcast contains time sensitive information that is accurate only as of today, May 6, 2010. Any redistribution, retransmission or rebroadcast of this call without the express written consent of STERIS is strictly prohibited.
I would also like to remind you that this discussion may contain forward-looking statements relating to the company, its performance or its industry, that are intended to qualify for protection under the Private Securities Litigation Reform Act of 1995. No assurance can be given as to any future financial results. Actual results could differ materially from those in the forward-looking statements.
The company does not undertake to update or revise these forward-looking statements, even if events make it clear that any projected results, expressed or implied, in this or other company statements will not be realized.
Investors are further cautioned not to place undue reliance on any forward-looking statement. These statements involve risks and uncertainties, many of which are beyond the Company's control. Additional information concerning factors that could cause actual results to differ materially is contained in today's earnings release. As a reminder, during the call, we may refer free cash flow, backlog, debt-to-capital, and days sales outstanding, all of which you will find in reconciled as appropriate in our most recent 10-K filings.
With those cautions, I'd like to hand the call over to Mike. Mike?
Thank you, Julie and good morning everyone. This morning I'll spend my time reviewing our fourth quarter results then Walt will discuss the fiscal 2010 full-year results and view our outlook for fiscal year 2011.
Before I get into details of the quarter, there are few moving parts in our numbers, so for clarity let me remind you that included in the fourth quarter of fiscal 2009, our restructuring expenses.
The actions initiated in the fourth quarter of fiscal 2010 included our decision to transfer the remaining positions in the Erie Pennsylvania to Mentor Ohio as well as to consolidate our European healthcare manufacturing operations into two center locations within Europe.
Both of these actions will take 18 months to 24 months to complete, so did our assumption that additional restructuring expenses of approximately $4 million will be incurred over the next two years relating to this actions. The actions taken in the fourth quarter are anticipated to generate annualized savings of approximately $4 million.
We anticipate these savings will be realized over the next couple of years with approximately $1 million benefiting fiscal 2011 and $3 million benefiting future years. My discussion of the fourth quarter results would exclude the restructuring expenses in both fiscal 2010, and fiscal 2009.
Let me now begin with a recap of the income statement for the fourth quarter. Total revenue decreased 3.6% during the quarter. Volume declined 6.4% while pricing contributed 1.1%. And a weaker U.S. dollar contributed 1.7% to the growth in revenue.
Gross margin in the quarter was 42.8%, an increase of 190 basis points. The increase was driven by pricing, productivity improvements and lower raw material costs. The $1 million favorable impact from raw material cost primarily related to stainless steel. Operating expenses as a percentage of revenue declined 70 basis points to 25.8%.
Included in operating expenses for the quarter are product modification expenses of $3.2 million which is primarily related to changes we made to a portion of our 30 85 surgical tables in the field. EBIT margin for the quarter improved 270 basis points to 17%.
The expansion in EBIT margin is due to improvements in gross margin and our continued efforts to improve efficiencies. The effective tax rate in the quarter was 37.8%, compared with 38% last year. Included in the quarterly rate is an unfavorable discrete item adjustment of approximately $1 million resulting from the provisions of The Patient Protection and Affordable Care Act.
Net income increased 15% while earnings per diluted share of $0.55 represented an increase of 12% during the year. We move on to our segment results. Healthcare revenue in the quarter decreased 5%, as consumable revenue grew 3% in the quarter driven by growth in new products specially Prolystica Ultra Concentrate chemistries offset by lower SYSTEM 1 consumable sales and a negative impact from the timing of H1N1 purchases.