STE - Earnings call transcript Q1 2020

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Operator

Good morning and welcome to the Steris PLC First Quarter 2020 Conference Call. [Operator Instructions]. I'd now like to turn the conference over to your host today, Julie Winter, Senior Director of Investor Relations. Please go ahead ma'am.

Julie Winter

Thank you, Keith and good morning everyone.

call Mike Walt President Tokich, today's and our and on and CEO our usual, we Rosebrough, have President CFO. As Senior Vice do I have few of And a caution. words

information today. Any strictly retransmission comments. webcast for the open call of prohibited. redistribution, accurate of expressed we of contains written or Before consent time-sensitive as only that this This without rebroadcast is is STERIS

may the be during are considered statements. made this Some statements or of forward-looking review

from securities available materially in cause risk undertake website. actual or company any results statements result STERIS's as revise Many without the does filings forward-looking or important on factors our the including a events differ forward-looking developments. SEC of could also factors through to and described filings. not those limitation company information those new future statements, are update in to STERIS's The or

call In be diluted income, segment operating per addition, measures, free on flow earnings organic and today's including adjusted share, growth cash currency non-GAAP constant financial revenue used. will

Additional Non-GAAP to these between by financial providing the transparency release of non-GAAP today's information GAAP financial Board presented and is financial including measures. definitions information intent available and management their measures, operational measures this call and analysis reconciliations are greater during with Directors regarding used the of supplemental financial in including in decision-making.

With those cautions, to I call the will hand Mike. over

Mike Tokich

morning performance. is morning again once It my good be first everyone. the to review this Julie, with highlights to and you Thank of you, pleasure our quarter

XX% points price. and basis quarter, constant of driven growth currency, by the organic volume was For revenue XXX

costs. productivity, mix somewhat basis to new products. impacted favorably our from quarter XX.X% material We with and offset labor Gross success increased underlying was continue the to growth strong higher and currency, price and experience margin and by points for XXX customers by

given incentive the mostly first was in from to effective XX.X%, was rate higher quarter adjusted despite of margin quarter. the basis last than benefit compensation an EBIT strength increase anticipated, quarter XX% relating increase of SG&A Net the to revenue, The XX.X% quarter the to expenses, compensation and lower XXX million discrete revenue we tax to growth, of quarter the year, stock share, for points the in income from primarily grew per benefiting in $X.XX a favorable increased tax earnings diluted the and somewhat expenses. due to rate. margin had items lower expansion $XXX related an

the in ended with$ billion of terms XXX.X of total balance In million sheet, we cash and debt. June $X.X

months flow quarter totaled and while first the the three the capital anticipated to increased was $XX.X due million for expenditures million, $XX.X declined depreciation Free million. amortization spending. During as cash first $XX.X capital to

his With call over that Walt for I turn the remarks. to will

Walt Rosebrough

and Michael everyone. Thanks good morning

stronger four heard effective additional As you've lower started expected The our full-year drove with year, rate earnings first above expectations tax expectations growth updating performance exceeding segments. now fiscal the revised our our than or from are the fiscal on meeting the in we for Mike we all and for the in volume quarter rest expectations of quarter, the outlook. our based and already XXXX

holds course our for outperformed volumes with year The plan, range. year driving we now to up we revenue to growth the versus year. than that the the planned revenue, the our business in X% quarter of will XXX The the two that we higher increased suggests of updated for Health care a original segments currency growth and remaining our originally and over Products are constant forecast points for X% out X% volume our of AST. experience somewhat X% fiscal Starting that expect original from first revenue the performance the organic basis XXXX, --

care equipment. and capital consumables for both Products seeing is Health improved demand

cleaning instrument products sales in consumable chemistries V-PRO grow new have assurance, sterility helped consumables. Our and

a in have grow backlog shared capacity we pipeline constraints capital orders, strong we into manufacturing capital going significantly, our capital the equipment run a equipment equipment our given forward. can of side, healthy facilities When and On any period. in

AST recognizes normalized rates potential which at risk equipment growth, us year, as timing the of revenue AST year-ends. at our have and The we This strong that we continues our customers shipments reported. issues about previously core plans continues. the from to our run years. increased made And our to segment demand ends significant some creates capacity plants run past encourages throughout Our forecast feel capital have expansions device in for expansion medical efforts the and deliver for quarter we

-- point improvement are growth, are percentage. approximately we EBIT margin we increasingly company, additional comfortable the with With in for the total basis volume XX

$X.XX be also diluted share to outlook. anticipate from be our will at We of earnings XX%. the of With XX% these effective we adjusted 'XX, factors original FY rate low now original $X.XX, the considered, per to up end tax guidance of all our for anticipate $X.XX that range to our in

by internal exceeded meet first by While consensus plan it quarter much. $X.XX, that not our our did

a second As first we XX% to expect half half. weighed the revised our about be XX% in and forecast to continue result, in earnings in the

is rest The outlook unchanged. our of

in to growth million the year. As free future cash we about fuel expect in $XXX capital organic in our continue and $XXX flow businesses, to spending million for

quarters ramp the has likely board retire you next as it a On to year saw in proxy, has said, up Our note, annual we the projects our light a several of Mike started bit but as we move members as our three as completely had over meeting. expect forward. our different capital spending

He XX and investor Board member longstanding innumerable contributions he Board for of their has ever wish in Mayo three made All the Clinic. former of individuals the sir, has Wood many Synergy Wilson a of combination thank the Nichol since, as where been Duncan Head years over our significant a best. unique XX the them has several in of years initial over Board And to Dr CEO the our contributions Michael and UK a had with his tenure. very have in Loyal foresight service he member. result former the our to these and the on company be perspective for over Health, Board years. surgeon years brought ago. has and served Chairman primary made the NHS, our him ago We joined Steris' was

closing, ongoing short started bright for this appreciate continue is In long-term another FY year future of we year and strong We in and the performance the we STERIS to and your support. record believe expect 'XX. term

any now have. can We to are pleased please. start Q&A, you Julie, questions you may take

Julie Winter

give would Thank you, Walt Keith, comments. the and started we'll your Mike please and get you instructions on for Q&A.

Operator

certainly. Yes,

question-and-answer the begin now [Operator Instructions]. will We session

Mishan from comes question with first Matthew KeyBanc. The

Matthew Mishan

for outstanding an you thank taking the and and questions Great quarter.

Mike Tokich

Matt. Thanks,

Matthew Mishan

or you if off scale market it's you're help seeing explain multi-year transitory you Mike, the share period time? due competitor with gains issue Walt, can start you're guys over demand a a and AST whether increased just seeing near term not to or and of is large can this

Mike Tokich

been Matt, due been about are strong than reported but we making to haven't haven't closing to You time expanding. OEMs modest increase have has capacity There speaking, stronger we just has where that There some, in some the this due And I to medical been our our probably several devices who frankly. in Europe. places think Chicago modest very know we Brexit for underlying device been customers we that capacity has continue been expectation seen the We've put AST And increase good these before, in to. now our quarters, then last you refer generic growth. generally there building increases. talked are for some

share and kind of the we to outsourcing probably there definition good in do the of if why right have will, or our places. that. XX growth, by expanding that And that's come fortune on due you up, picking So our had continued of to continue than we having have years will fair plants and for next the we the more

bit a So from to call someone it's don't to us. we're comfortable customer but it's A any swing faster this market, customer to big I churn. the radically B of think that a We faster a customer due than or we're moving not and particular growing

constant roughly a for quite Our while. has net churn been

positively a it's picked out range. have not while, quite We for up but of

true we device of is this better of a little share. bit growth [indiscernible] picking lack the So And getting fair better the terms obviously growth our in a are customers. than for up

Matthew Mishan

And us of outstanding. give sense business. ORC [indiscernible] the your then in now could a you also right momentum Okay, you're seeing

Walt Rosebrough

in we forward. probably in people who are the Matt, to you grow I in this lumpy to continues about short continuing dissimilar and we've not saying is It's grow. bit than grow little is our what conversation faster a the But that feel terms, from and been things growth will can that the very business good it tell nicely going is, average growth growing interested that of doing pipeline and prospects run.

Matthew Mishan

there There equipment Alright, seeing indicated and here. there that international been has like been you're versus delays. cap trends some international other companies lastly, then has Any differently US. versus -- have

Walt Rosebrough

we've Europe Yes, is of seen kind flat.

if it that to been picked look hot now Latin for US picked hard Since view. for continues as Latin US, If and But up. we Pacific nicely. our we little not the hot is also market us about is in no while orders you that to has of or a question small done volume feel tell. up America it's a has there So the much relative just at if Asia the better America relative US. has is grown and the stronger. some kind

So we're there. comfortable

the So last kind has for what in And spot, if will, have consistent Europe other think been of with people little the that reported. bit. the weak that's you growth I

Matthew Mishan

much. very you Thank

Operator

The next question comes Stephens. from with Cooley Chris

Chris Cooley

I I'm on the time you taking appreciate that Walt. the guidance it's quarter. first fiscal the time. Good been been actually trying it's – morning. when I've some you And I to questions. seen think, last guess raised

Walt Rosebrough

you Chris suspect, I found haven't one.

Chris Cooley

age. started my now a. But right. at this to -- is we It me lose That's

rate Science bit capital lot look within Life within So want there? questions very But you obviously I both was to A X% of anticipated. knit anything, the sense backlog what we quarter, than think guess basically and lower space and if in expected makes little the the remind you're would maybe . I the the segment did us in at Could deceleration a as we Science very, one, Life is seeing the just when strong. have maybe did backlog expected Well, year-over-year. I the growth from of quick to growth healthcare decelerate it's X it me

So just environment healthcare what to have I'll in run, bit, environment capital maybe follow-up. short quick you're and us a the little the seeing talk in -- capital a

Walt Rosebrough

Chris. I'll pipeline of, Yes, order or not any coming in. We're seeing pipeline deceleration call it

it if be would the opposite. fact, anything, In

So a backlog shipments. orders orders and have it's is of small might relatively piece

quarter bit terms bit, we're little rates So a more shipped seeing fell backlog any the decline. might than a pipeline, but And in this order expected. you we in have of not

which often any given change, temporal quarter. a given happens and So capital is this in any

you know, lot grown the we've a XX in last backlog As months.

to it if so bit use in little have And some more Science. orders the as types ship X concern. Life in a that having in backlog in in some too ship drops backlog, then XX There of to points, much X off months a problem. asap of are in there XX XX is of you some fact and like is XX lot is and type have a to we and which X point your some if it But actually

we try to quickly as from [indiscernible] out We we of as So bunch them can. have customers. a orders get

or does pipeline all. in any reflect orders not concern And forwarders. our view of not in this us concern it at coming does So

Mike Tokich

And Mike. Chris, this is

you what that that million if at in are look X% you up number $XX XX%. other we correct or but are sequentially, the The

a So we equipment higher do capital the than bit in with we little X% see to quarter, for timing up were fluctuations and again, anyhow. growth has a is it lot which typically and

think timing on it's about concern again all don't end. any I Walt's So our there point, is the to

Walt Rosebrough

would don't still But coming order such just in that total looks give backlog we shrinking rates disagree It's and pause. shipments -- the of small a see that we're that strong. the in, piece backlog that your then I interested you more

Chris Cooley

I what the It's thought. [indiscernible]. Appreciate additional

the watermark for Just when you lastly you've a margin if in new got quarter. AST operating me high at then look but for

Looking impressive. back is here which historically, really

to maybe in are little existing as fiscal or the much. this. to normal trying you across the So where a maybe utilization, feel sterilization get shifted about of us just better capacity techniques. how mix bit to has is talk new terms high go this improve business? of is watermark for, model that Thanks new we upon we as the Can year, kind so Basically this we

Walt Rosebrough

Great that question. in as expect. plants Chris. our And we said plants. grow when we're we Sure, than terms And have faster building of we

right now of factor. of function getting being any our nicely very a more percentage a kind pretty and basis on So it's plants than our are full other utilized plants run

we're wouldn't those low fluctuations I high running bet in So right been life pretty obviously we XX% on 'XXs mean I now rest in while. the my for numbers of but the hot. temporal we've a time, and see and 'XXs will

I reasonable are thinking think those be numbers about. numbers to

Chris Cooley

Congratulations quarter. the on

Walt Rosebrough

Thanks, Chris.

Operator

Thank from you. with Great Jason And Rodgers the Lakes question comes next Review.

Jason Rodgers

Yes, on on side. new equipment much that just or outlook the How looking the needle anything improved consider a consumable to you would of the is there? there the you Is due introductions? Healthcare your at Products say side would mover that product

Walt Rosebrough

have really even a on forgotten filling Healthcare know might XX introduced we're year, have pipeline last new year new XX you for something I've products the And exactly we Yes, in the year. side Life of on to we going this introduce -- number, Products I order on side. little that the that XX and which products this the be but we the that what's

not products picking mentioned lot steam. products for ones now. we've mentioned it's growing It's in I Australian the silver seen that the significant of are are any where the text of one nicely that quite right So us a just bullet. growth. I assurance some up kind new

grow new allow new number in now capital again of ICC consumable is capital the are We by in then new a completely a best we [indiscernible], and hold. of space. V-PRO so. just We by products, line continuing chemistries the capital dose the V-PRO new products our business cleaning multiple drive products margin. ICC consumables driven new think have products those to We take new to do new in just as and we or new by those consumables those have place that have products And margin, now a have and we significant line products not but

grow. to continue they So

It's there We're and a a tables of things go and force So it's think products for is dominant a series so in particularly not any and it's lights washers sterilizers them; any together product is and single of ORI seeing here. the also one be product, I washers, multiple of driver. and that combination that it's products the product not things Europe. the one and that them, working not sterilizers with them go with much the the family just

Jason Rodgers

the it's to check All material, tariffs. right. And mean, any I impact just think change but I the in I expectations on wanted that that. for on

Walt Rosebrough

best China million tariffs our time of of is the on of year. something check round at Good the this is order estimate a newest $X

well So although we out. the laid that don't like seeing $X million of guidance disappear. within It's we've range

Jason Rodgers

All right, you. thank

Operator

question Thank you. And Mitra from the Ramgopal with Sidoti. next comes

Mitra Ramgopal

hi, Yes, good morning.

Just a questions. couple of

in million restructuring cost in announced the was half you're -- I still a about December. would next and this to on First year the wondering just holding back half XX of of plan year terms if savings

Mike Tokich

Mitra. Yes,

question. in We half target. are Good on outlook target is on we back which will are our million definitely year, that the mostly reflected in $X be for savings and the the tracking of

Mitra Ramgopal

Mike, on if done any tuck-in thanks. wondering you have had that. looks it Okay, a additional quarter. this I'm acquisition might color just And like you

Mike Tokich

Yes, middle our revenue specifically it acquisition was we in a of somewhere the will IPT of space, that of did prevention care in systems $XX technology small our acquisition the quarter, generate space, infection health in year. this in neighborhood around million a

Mitra Ramgopal

you been obviously I in it's to coming see the was should just wondering pretty continue is. that terms these at couple holding actually then just backlog going kind the Life of look but if business, That of up great. years think forward, Sciences you of past, numbers I last been a thanks. is well. where was we know Okay, in lumpy back on And the it little if

Mike Tokich

Yes.

equipment. huge ago in And for we've three run had this then that months XX% growing years pretty level Life we more months backlogs Science. side growth we single digit, And million -- roughly now, the very of modest with or at where $XX we in probably backlog, numbers so. when leveled but remember, it's hard at comfortable said equipment of range. year we're that a in capital lumpy. We're level, the it's of business up we're to of off on and or -- is we've sort we quarter range or kind bit. remain up not were growth, it previous can XX but As in that XX%, line I, capital This comfortable digit we're was XX%, But a little XX feel it's last low-single XX%. so atypical growth these the quarter. do seeing of off

a of be piece. So that's way large a machines works, million in kind sizes, that of comes relatively the can $X.X amounts business small that those business

together you into good those quarter get a the a and next of for So really couple slip a of you have couple quarter.

pretty how weak sustaining But, quarter. well. our that time as that point a way have You visibility, level this and future looks in the comfortable we're at

So side nicely and that very grow we're pretty is comfortable consumable we there. The continuing. anticipate continuing to

Mitra Ramgopal

It's again thanks. helpful very on and Okay, a great quarter. congrats

Walt Rosebrough

you. Thank

Operator

Thank from you. with next Larry Raymond Keusch James. The question comes [Operator Instructions].

Larry Keusch

Good morning, everyone.

know year you currency organic a off look the year. through Walt, that How questions, the constant to we the you the two to organic the reconcile guidance start move the but I quarter. X% you X% implied came range, in appreciate to So deceleration XX% as given strong just that do increase and

Walt Rosebrough

entire We business quarter. just had growing And year going don't high a we think characterize Larry. XX% I would our forward. a

math the our to something a X% is get I'm obviously, done that in slowdown. myself, suggests So to to I mean X% I range, within actual which normal range. numbers, guessing that, the haven't the like well

we're XX% having a ready So We have growth we're we're year. strong to at continuing a say quarter a strong had year. infinity. anticipate high to we not But

pretty So reconciliation. much I that's a think

Larry Keusch

continue be just we remind thinking from it'd that whether currencies, of the the And be the strengthen, to impact peso us just about dollar how can given or perfect. Mexican should pound? you some is generally the then, Okay, the again

Mike Tokich

Yes, Larry, is Mike. this

like So And and reasons a on strong and the we the dollar Canadian strong the tend what then pound. we in weak is and is on side have to euro general manufacturing. to what side that we a opposite like a side, for peso weak tend and Mexican the Canadian

better the the the then we us. euro sales And channel. lower and the have on cost So, the pound, for

more the at we higher by much currencies, than benefit the having a euro those dollar. So pound exchange rate get the and

Walt Rosebrough

service businesses pound as more to the largely the euro are product. heavily, it's And on for us, heavily opposed service the with

cost shrinks, if from the shrink, and travel export the it's but those Finland, would just we margin revenue have if Larry we not a France amount States, and United a say fair and to -- and I export together, export Mexico people component the and which do the currency Canada we UK. fair products amount, but where So from who all and

export we those So of countries. all to places from lot a other

pressure And the to us, -- have so rare the those rise on where be those that currencies moving questions puts we're on pressure plants neutral direction X off manufacturing we're all it to everybody reeled those same where kind for or but in currencies fairly to else. as of it's we getting X because against

So hedged, an ever than on more more we we've sell things that naturally overall profit on and currencies a can with against been. we're we tougher are basis both heads

Larry Keusch

can there to for the lastly any And were top I FX head, quarter? you year just me, remind my the just don't changes have made on on of it that, this outlook off perfect. Okay, the just

Mike Tokich

$XX revenue still impact million and for we negative to believe We is did neutral. EBIT increase the

increase So negative on top the line, on impact the bottom but side, line. no the on

Larry Keusch

Mike. Walt. Thanks, perfect. Okay, Thanks

Mike Tokich

You're welcome, Larry.

Operator

from next JMP there the And [indiscernible] you. comes question with Securities. Thank our

Unidentified Analyst

operations. sort of a your level Walt a the thoughts you surgical I'd there's kind a driving the that a sort to pointing that's of a STERIS device an at curious strength hospital opportunity segments to We volumes, of there's surgical and if just in lot maybe, don't procedure this in increase we procedures or hospital, in of world in time there you're here. medical look talked congrats. quarter, seeing across think the every past, for really and around procedure I'm revenue noting and what high Thank volumes is know you want anything any on this I love in bit If specifics. question get happening.

Walt Rosebrough

tells in in so hospital are know I exactly We terms busy. me talked clearly always you're devices, busy, facilities right. we're strength of I've recently to seeing medical volumes. there seeing Every Yes, are those

and surgery to have have asked where surgery I by doing Now it number is and you you inpatient use capex like this procedures the procedures. outpatient purposes, or surgeries from our can don't US outpatient they're to really care of you in from in industry broader surgeries well the for works we care really hospitals, about sense, inpatient be business procedures separate way any the if our inpatient separate if those

in GI surgery or our centers the before has procedures been We've view said strong. term. hospitals clearly centers procedural it's other and So in for and-or long it ambulatory centers

sculpt the knee it's which If the as for it fast through a fastest Europe growing high getting fast and issues shoulders, ambulatory growing, new other is for as in you is level it long at wants baby hips much boom it's complexities. and have boom in that least the more to and growing, new at as area look the term, and our surgery Running America. the baby also as business US, North and and and surgery ambulatory multiple in have of we Western

do are surgery they and GI centers So, being and and settings. token, capabilities more in the the centers done complex surgery more by sterilization have ambulatory and to real there acute in other need same

very so gee! only And of that's We than were but transplants X X knees. sculpt if doing them like looks surgeries, different even it though X oh double did

surgery I have we're care. the where procedures surgeries them care push to rise. faster and all we through, people more want as rises And and more less the across capita can And non-industrialized more coming of think the baby So patients afford be. the seeing setting more moving Are in their health ambulatory boom to the intensive of both ambulatory GDP then in industrialized to the world per in growth acute world. and this Western this more or of continues is kind complexity In in the who going more world require

long-term the of invested we So which why is that procedures quite for good in the is outlook think and rate we've space.

Unidentified Analyst

detail. all for the you Thank

Operator

next from follow-up with Thank a Mishan you. And is KeyBanc. Matthew

Matthew Mishan

question. Great. has value guess in to especially of you have kind a of last changed how like I the is the mean your I hospital proposition with David's to of ASCs the just years. share rise follow-up system, over of, the couple

Walt Rosebrough

Well, say, more But you I think don't around this it's seen we services space. Matt, what would change radically know, and as I we and in have bring a you years. couple have of products as procedural done more

And help the out units are in can mobile with bring services, so surgical instruments. products the the Bringing in so family bringing that if do out. were we IMS, in we their and ORC help are of we can stronger of they capacity them today concept, them

many and are the In Products. in stronger to ways able We addition the just we areas. a that them and into in entity to services much new brought all the Healthcare different more help products procedural

But that say. We're we last let's I you at years when And a very hospital years. were call but so, entity ago, if procedures X radical look the it the XX last we're in facing the change different a dozen wouldn't years.

Matthew Mishan

those? restructuring you you your impacting sales are through you of talk to of that. talked a about shifts about of that absorbing million. on just also you shift larger about of then, XXXX? maybe a that Brexit. $X from last bit by see, then Sciences some positively to headwind And Okay. stocking see kind about top bit as And timing Can when as And a well talked ahead little And about the quarter in a do talked expect you those manufacturing in to of you $XX little Life

Walt Rosebrough

great X actually. through mentioned, Yes, Matt, X question items to you the kind that or and try of I'll walk

much First be. well idea we no had we and million about we were might these vis-a-vis sure pull and it Brexit how it the said all pretty [indiscernible] X time of Brexit there forward else was at

And quarter wasn't we range. strong aware that guessing XX fact number XX, have of, because all stayed space. very X or or two. really that closer so the we the well million were it to don't it to in We million the were that plus that don't the But to still we X visibility a that suggest minus was probably know

feeling or a as opposed that X we're So the X was numbers, little it more numbers to or times X. comfortable known a known bit plus

then or Brexit to buildup. not. and Brexit. it they the it it out back point two We've is given there fact ourselves pull I the not future again. whatever is So settles build speaking not adjudicated. well I until do the just just to think in it from I Brexit but that's how UK one, sit and on down after wouldn't some point I point We're be that maybe up see We made. sort the is suspect dust the think after number would and planning We're going letting it

that's thing. I the logical most So think

the they're So, And think few you but I the range. to tell me we're when going answer, I'll more in and exit. give how you dollar million comfortable

order our we There pull the in forward saw fell was closure. terms In off quarter. We of orders those expected. exactly what and plant

over comfortable, that's even still feel at the comfortable we're That's plan. more So forecast without a done. reason but that of we that, because it's with was loss, part that our we our absorb

we that So absorb one.

will XX larger to it's numbers be closures probably over a of with that relatively be the will the months. but months, of out terms small in spread the, number there XX next product still And over

you'll think notice. So I don't

the there hit I Matt. all think I topics

Matthew Mishan

Yes.

them got you think I all.

Operator

you. any closing are Thank questions, as floor I no there Julie comments. And would Winter more like for to to return the

Julie Winter

great to And you your Keith. continued for for you, morning support joining and thank everyone Thank this Have day. us Steris. a

Operator

Thank Thank attending you. concluded. presentation. The you for is conference today's now

You your lines. may now disconnect

STERIS (STE) 7 Aug 192020 Q1 Earnings call transcript