STERIS Corporation Announces Fiscal 2008 Third Quarter Results

Thursday, January 31, 2008 General News
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MENTOR, Ohio, Jan. 30 STERIS Corporation(NYSE: STE) today announced financial results for its fiscal 2008 thirdquarter ended December 31, 2007. Fiscal 2008 third quarter revenues increased5% to $314.0 million compared with $299.0 million in the third quarter offiscal 2007, driven by growth in all three segments.

Fiscal 2008 third quarter net income was $21.8 million, or $0.34 perdiluted share, compared with net income of $21.3 million, or $0.33 per dilutedshare, in the third quarter of fiscal 2007. Included in net income for thethird quarter of fiscal 2008 and 2007 are expenses associated with the Erie toMexico transfer of manufacturing operations, which negatively impacted dilutedearnings per share by $0.01 and $0.03, respectively. Additionally, the fiscal2007 third quarter included a gain related to discontinued operations, whichcontributed $0.01 to diluted earnings per share.

"While demand remains strong across our operations with revenue growth inall three segments and record backlog levels, we are experiencing a slowerthan anticipated ramp up in production levels at our new Monterrey, Mexicomanufacturing facility," said Walt Rosebrough, President and Chief ExecutiveOfficer of STERIS. "Because these capital products have long lead times,these delays have had minimal impact in meeting customer requirements.However, these delays did temper shipment levels and added incrementalmanufacturing costs beyond where we expected them to be. Currently, ourproduction levels approximate our expected average monthly run rate, whichbodes well for better throughput levels in subsequent quarters.

"As we had indicated previously, our performance expectations for thecurrent fiscal year were heavily weighted to the second half. While we arecapturing labor cost savings in Mexico, we will not reach the productionlevels we originally required to achieve our second half revenue and earningslevels. Additionally, raw material cost increases have continued. As aresult, we have lowered our earnings expectations for the full fiscal year.While we are disappointed that near-term performance will fall short, we areencouraged that the fundamentals of our business remain strong, as evidencedby strong order growth, record backlog levels, new product introductions, andstrong free cash flow."

Quarterly Segment Results

Healthcare revenues in the quarter increased 5% to $220.5 million comparedwith the third quarter of fiscal 2007. Revenue growth was primarily driven bystrength in consumables, as well as solid demand for service. Capitalequipment revenues were flat compared with the prior year quarter andpartially reflected reduced volume throughput at the Company's Monterrey,Mexico manufacturing facility. Order backlog levels grew to a record $107.3million, an increase of 22% compared with the prior year period. Operatingincome increased 2% year-over-year to $26.2 million. Sales channel andmarketing investments related to new product offerings and increased researchand development expenses impacted operating income levels.

Life Sciences third quarter revenues were $59.0 million, an increase of 5%compared with the third quarter of fiscal 2007. The segment experiencedgrowth in capital equipment for the research market as well as service andconsumables. However, delayed project activity among customers in thepharmaceutical market affected revenues in the quarter. Order backlogincreased 30% to $58.3 million compared with the prior year period. LifeSciences operating income was $0.8 million in the quarter compared with $2.5million in the third quarter of fiscal 2007. Operating income levels wereprimarily impacted by increased research and development expenses related toproduct enhancements and by foreign exchange translation.

Fiscal 2008 third quarter revenues for Isomedix Services were $34.6million, an increase of 4% compared with th

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