PSS Returns to Roots of ‘Intense Competition’
Edition: December 2002 - Vol 10 Number 12
PSS World Medical’s decision to sell its Diagnostic Imaging subsidiary, announced Oct. 28, reflects the company’s desire to simplify its business and to focus on its core, non-acute-care strengths. The fact that Diagnostic Imaging had a loss from operations of $2.4 million on sales of $712 million in the fiscal year ended March 29, 2002, probably didn’t hurt either.
“This action clearly defines and simplifies the path our company will pursue to achieve our goal of superior customer satisfaction and profitability,” said PSS President and CEO Dave Smith. “Our continuing businesses -- physician and long-term care -- have demonstrated solid revenue and earnings growth, along with increasing margins and returns on committed capital. They share similar vendors, supply sources and distribution characteristics, offering very attractive opportunities for leverage and cross-business synergies.
"Equally important, the alternate site customers they both serve require differentiated services from those of large acute care organizations,” said Smith. “Focusing solely on this customer base will enable us to fully leverage our innovative and market-leading customer service strengths. We will devote our full attention to growing and broadening our alternate site business through expanded product, sales force and service offerings, further market penetration, entry into new complementary markets within our core competencies, and value-added acquisitions.”
PSS sold DI to Platinum Equity LLC in a capital stock transaction for $45 million in cash and the assumption of $71 million of liabilities associated with the imaging business. In addition, the sale of the imaging business was expected to generate over $40 million in tax benefits that would be applied to ordinary income generated by PSS World Medical during fiscal years 2003, 2004 and 2005. The transaction was expected to close by the end of February 2003.
During a transitional period of from one to 12 months, PSS World Medical agreed to provide operational support to DI under a provided-services agreement to ensure a smooth transition.
Excluding the imaging business, PSS World Medical had fiscal 2002 net sales in excess of $1.1 billion and income from operations of $25.8 million (before income taxes and special charges).
The sale of DI returns PSS “to our roots of intense competition,” said Smith in a Halloween teleconference with investment analysts.
“We remember what it’s like to operate a growth company,” said Smith. “We remember what it’s like to be intensely competitive and focused on winning. We’ve always provided best customer satisfaction and service along with growth and profitability when we’re in that growth mode. Well, I can tell you, we’re back, and we’re excited to be back.
“Our physician and long-term-care business provide us with fantastic platforms to grow and expand profitability,” he continued. “We plan on staying within the nine dots, though, of those markets that expand product offerings, customer reach, sales forces, even while possibly making acquisitions that are appropriate to leverage our infrastructure and to help us grow our profitability. At the same time, we will stay true to our new operational professionalism and discipline by increasing services while decreasing cost of operations, and by executing flawlessly our strategic plan.”
Physician, LTC Businesses
Smith used the teleconference to reinforce his confidence in PSS’s physician and long-term-care businesses.
Offsetting a 15 percent decline in Abbott business (due to that company’s continuing problems with the Food and Drug Administration) is PSS’s recently signed agreement with Beckman Coulter, said Smith. The agreement gives PSS exclusive distribution rights to Beckman Coulter’s high-end biomedical chemistry systems. “That should turn the tide of the Abbott revenue decline,” said Smith.
“Overall, we’re confident that the physician business will return to high single or low double-digit growth as we gain momentum from these offensive strategies and leverage our restructuring program,” he added.
The company’s Gulf South Medical Supply long-term-care business “has fantastic momentum, and has steamrolled into the second quarter with 9.4 percent growth – more than double the market growth rate,” said Smith. “You have to be impressed with these guys; they’ve achieved these results in a period of management transition.” PSS named Tony Oglesby, former executive vice president of marketing and sales of Gulf South, to president in September.
“I believe we have a great company today, and that our DI employees have a great new home,” said Smith at the investment teleconference. “Our new company, after two years of very hard work, has extremely good financial strength and flexibility.
“We’re focused on intense competition and growth, which is our roots, with new products, services and more salespeople. We have a balance of operational and professional that we’ve never had, and a focus on reducing cost and improving efficiency…for our customers. And we have a great new management team, and a plan for the long-term value for our employees…”