MENTOR, Ohio — Uncertainty about health care reform in the United States and fallout from the global economic crisis cut STERIS Corp. revenue sby 9 percent to $283.5 million in the first fiscal quarter, compared to a year ago.
“That said, at a high level, we feel good about our first quarter, given the challenges in our end-markets,” Walt Rosebrough, president and chief executive of STERIS, told securities analysts during a conference call this morning. STERISÂ makes infection prevention, and surgical equipment and supplies for hospital customers, as well as contamination prevention equipment and supplies for research laboratories, and food and drug makers.
“Although our shipments were about 9 percent below last year, our total capital backlog increased by $15 million or 9 percent versus … a year ago,” Rosebrough said. A growing backlog means customer orders still are coming in. STERIS revenues held up better than some competitors’ because the company has launched several products in recent quarters, and some of its business lines, such as operating room tables and equipment, are more “resilient,” Rosebrough said.
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He also saw a silver lining in the current dark economic cloud hanging over customers’ heads. “We expect the near-term political and economic situation to continue to put pressure on our customers’ budgets,” Rosebrough said. “However, we believe the capital financing markets have improved because most of our customers have access to financing for their needed capital.”
Hospitals and corporations need access to bank loans and bond financing to expand their facilities — and to buy capital equipment from STERISÂ for those facilities.
STERIS net income was $25.5 million, or 43 cents a diluted share, in the quarter ended June 30, flat from a year ago. “On the profitability front, we had the benefit of new products, our efficiency efforts, as well as favorable currency rates, all of which contributed to meaningful expansion of our operating margins,” Rosebrough told analysts.
The Mentor company stuck with its revenue and earnings forecasts for fiscal 2010, which ends in March. In order to stay at our forecast of flat to modest-decline of revenue for this year, we will need to continue to be successful with our new product launches, and we believe we can do so,” Rosebrough said. “We are clearly off to a good start in the first quarter, from an earnings perspective, and we are increasingly confident in our ability to deliver a full-year earnings in the range of $1.80 to $2.”
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STERIS expects to save about $20 million during its fiscal year as part of efficiency programs put in place several quarters ago, Rosebrough said. “And we continue to search for ongoing efficiencies,” he said. The company’s profits also benefited from stable raw-materials prices and favorable foreign currency translations in the recent quarter.
Rosebrough also announced that a longstanding U.S. Department of Justice investigation into whether STERIS lied about the effectiveness of its first sterilization system, called System 1, has ended. The Justice Department has been looking into System 1 since 2003. The cold sterilizer for medical equipment made news in 2002 when a Pittsburgh hospital blamed it for an infectious outbreak that killed one patient and sickened 15. Steris has said that the hospital used the equipment improperly.
“We have recently been notified by the Cleveland DOJ office that they have closed this investigation, and they have have decided to decline prosecution,” Rosebrough said. “We are pleased that the DOJ has come to that conclusion, and believe htat the DOJ matter is now closed.”
However, STERIS still is working with the U.S. Food and Drug Administration about a warning letter from the agency, issued more than a year ago, also about System 1. The FDA said in its letter that STERIS may have been required to file a new “premarket notification submission,” known as a 510(k) submission, for the sterilizer because the company significantly changed it since launching it in 1988.
In answer, STERIS filed a 510(k) for a next-generation System 1 in January. “We continue to work diligently with the agency to answer questions regarding this 510(k) and resolve our remaining issues with them, Rosebrough said.
Steris shares were up more than 2 percent to $30.05 in mid-afternoon trading on the New York Stock Exchange.
