STERIS plc (NYSE:STE) today announced financial results for its fiscal 2017 second quarter ended September 30, 2016. Fiscal 2017 second quarter revenue increased 32% to $646.4 million compared with $489.9 million for STERIS Corporation (“Old STERIS”) in the second quarter of fiscal 2016, driven by growth in all four segments. Constant currency organic revenue (see Non-GAAP Financial Measures) growth was 3% for the second quarter of fiscal 2017.
“We are very pleased to be delivering on our strategic initiatives: continue tuck-in acquisitions, divest non-core assets and integrate Synergy Health,” said Walt Rosebrough, President and Chief Executive Officer of STERIS. “Although orders and backlog remain strong, our revenue in the second quarter was somewhat softer than anticipated. Operating margins continue to improve in line with our expectations, and we have confidence in our ability to deliver a strong second half.”
As reported, net income for the second quarter was $40.4 million, or $0.47 per diluted share, compared with net income of $8.7 million, or $0.14 per diluted share in the second quarter of fiscal 2016. Adjusted net income (see Non-GAAP Financial Measures) for the second quarter of fiscal 2017 was $76.4 million, or $0.89 per diluted share, compared with adjusted net income for the previous year’s second quarter of $50.1 million or $0.83 per diluted share.
Second Quarter Segment Results
Healthcare Products revenue grew 5% in the quarter to $304.8 million compared with $291.7 million in the second quarter of fiscal 2016. Consumable revenue grew 15% and service revenue increased 3% during the quarter. Capital equipment revenue declined 1% in the quarter, with record levels of backlog at the end of the quarter.
Healthcare Products operating income was $50.1 million compared with $40.4 million in last year’s second quarter. The increase in profitability was primarily due to operational efficiencies, favorable foreign currency exchange rates and the suspension of the Medical Device Excise Tax.
Healthcare Specialty Services revenue in the quarter was $142.8 million compared with $70.6 million in the second quarter of fiscal 2016, reflecting the addition of Synergy Health and organic volume growth. Healthcare Specialty Services operating income was $2.2 million compared with $5.1 million in last year’s second quarter, primarily due to lower than anticipated revenue and continued investments in Instrument Management Services (IMS).
Fiscal 2017 second quarter revenue for Applied Sterilization Technologies increased to $115.6 million compared with $55.8 million in the same period last year. Revenue benefited from the addition of Synergy Health and increased volume from the segment’s core medical device Customers. Segment operating income increased to $40.8 million in the second quarter of fiscal 2017 compared with operating income of $17.5 million in the same period last year, due primarily to the aforementioned revenue growth.
Life Sciences second quarter revenue grew 15% to $81.5 million compared with $71.0 million in the second quarter of fiscal 2016. Contributing to this growth, consumable revenue grew 16%, service revenue increased 21% and capital equipment revenue grew 6%. Life Sciences operating income was $22.8 million compared with $20.9 million in the prior year’s second quarter, driven by 6% organic revenue growth and recent acquisitions.
Net cash provided by operations for the first six months of fiscal 2017 was $182.5 million, compared with $79.5 million in fiscal 2016. Free cash flow (see Non-GAAP Financial Measures) for the first six months of fiscal 2017 was $108.9 million compared with $39.6 million in the prior year. The increase in cash flow is primarily due to higher net income and a reduction in acquisition related expenses.
STERIS’s Board of Directors has authorized a quarterly interim dividend of $0.28 per share. The dividend is payable December 21, 2016 to shareholders of record at the close of business on November 23, 2016.
The Company is maintaining its outlook of approximately 6% constant currency organic revenue growth for fiscal 2017. Primarily reflecting divestitures, the Company is reducing its total revenue growth expectations to approximately 19-20% for fiscal 2017, compared to prior expectations of 22-23% revenue growth. Despite the decline in total revenue, the Company is maintaining its original outlook for adjusted earnings per diluted share in the range of $3.85 – $4.00 for fiscal 2017. Included in this outlook is the net impact of acquisitions and divestitures as well as the assumption of $20 million in cost savings related to the Synergy combination.
The Company has based its outlook on six-month forward rates as of September 30, 2016, and continues to anticipate an adjusted effective tax rate of approximately 25% in fiscal 2017. Free cash flow is expected to be approximately $250 million.
As previously announced, STERIS 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 1-800-308-4030 in the United States and Canada, and 1-203-369-3241 internationally.
STERIS’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.