Steris' stock price jumped by about 7% after it released its latest earnings forecast—the first forecast it has released since Nov. 2, when it acquired Synergy Health for roughly $2 billion and became a British corporation.
In short, the forecast is good: The company, whose main business involves providing sterilization services to medical device firms and hospitals, projects that its adjusted earnings per share will be somewhere between $3.48 and $3.55 during the company's 2016 fiscal year, which ends on March 31. If the company hits the middle of that range, that means it'll bring in about $250 million in profit.
That would far eclipse Steris' fiscal 2015 adjusted earnings of $179.6 million — a figure that does not include earnings from Synergy Health's operations.
But Steris' bottom line isn't just being boosted by profits from Synergy.
The deal is expected to save Steris $5 million during the current fiscal year and $15 million during fiscal 2017. Why? For one, Steris cut its tax bill when it closed the deal to buy Synergy Health.
On Nov. 2, Steris Corp. became Steris plc—a British company, even though its main office is still in Mentor. Thus, the company now has a lower corporate tax rate: Steris expects to pay an adjusted effective tax rate of 27.5% in fiscal 2016; the company would have paid about 35% if it never bought Synergy.
The company's tax bill also will benefit in another way: The federal government suspended the medical device tax and made permanent the research and development tax credit on Dec. 18, when it passed a massive package of tax and spending policies.
The combined company is eliminating some redundant corporate costs as well, CEO Walt Rosebrough said during a conference call with stock analysts on Dec. 22.
“We don't need two CEOs; we don't need two CFOs,” he said, adding that Steris also is making “some other minor headcount changes, largely back office.”
On the revenue side, Steris' pre-existing business is on pace to grow by 6% to 7% during fiscal 2016. With Synergy, revenue will increase by 21% to 22% this fiscal year, according to the forecast.
The company's stock price stood at $76.11 at 11:36 a.m. Monday, Dec. 28. That's up from $71.18 at the end of the business day on Dec. 21—the day before Steris released its forecast. It closed Monday at $76.39.
“While still in the early days, our integration efforts are progressing as anticipated, and we are excited about what we can achieve together,” Rosebrough said in a news release announcing the forecast.