Steris Plc (NYSE:STE) Q3 2019 Earnings Conference Call Transcript

Feb 12, 2019 • 10:00 am ET

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Steris Plc (NYSE:STE) Q3 2019 Earnings Conference Call Transcript

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Presentation
Operator
Operator

Good morning, everyone, and welcome to the STERIS plc Third Quarter 2019 Conference Call. All participants will be in a listen-only mode. (Operator Instructions) After today's presentation, there will be an opportunity to ask questions. (Operator Instructions) Please also note today's event is being recorded.

And at this time, I'd like to turn the conference call over to Ms. Julie Winter. Ms. Winter, please go ahead.

Executive
Julie Winter

Thank you, Jamie and good morning everyone. As usual, on today's call we have Walt Rosebrough, our President and CEO; and Mike Tokich, our Senior Vice President and CFO.

I do have a few words of caution before we open for comments from management. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission, or rebroadcast of this call without the expressed written consent of STERIS is strictly prohibited.

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

In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, constant currency organic revenue growth, segment operating income, and free cash flow will be used. Additional information regarding these measures, including definitions, is available in today's release, including reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making.

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

Executive
Michael J. Tokich

Thank you, Julie, and good morning everyone. It's once again, my pleasure to be with you this morning to review the highlights of our third quarter performance. For the quarter, constant currency organic revenue growth was 6.9%, driven by volume and 50 basis points of price. Gross margin for the quarter increased 20 basis points to 42.7% and was impacted favorably by currency, price and the impact of divestitures, somewhat offset by higher labor costs and the impact of tariffs.

EBIT margin for the quarter was 20.8% of revenue, a substantial increase from second quarter levels and 20 basis points better than the third quarter last year. EBIT margin was negatively impacted in the quarter by 40 basis points, due to higher than anticipated calendar year-end employee healthcare benefits claims activity, causing an increase in SG&A for the quarter. The adjusted effective tax rate in the quarter was 18.9%, somewhat lower than we had anticipated, due to favorable discrete items.

Net income in the quarter grew 11% to $107.2 million and earnings increased 13% to $1.26 per diluted share, benefiting from both revenue growth and a lower effective tax rate.