Jul. 23--PSS World Medical Inc. Wednesday reported higher earnings for the first quarter ended June 26, as the Jacksonville-based medical supply distributor continued to grow its business despite the weak economy.

Net income rose 41 percent to $13.3 million, or 23 cents a share. Sales rose 4.5 percent to $493.6 million. Both of the company's businesses, which supply physicians' offices and elder care facilities, posted increases in sales and in profit margins.

"We're doing very well in a world where nobody's doing well," CEO David Smith said in an interview.

Smith said while some of its competitors have been retrenching and laying off staff, PSS has been focusing on increasing service to its customers and pledged to maintain employment levels. The company had a goal of increasing its physician office customer base, which had numbered about 100,000, by 7,000 in this fiscal year, and it already added 5,000 new customers in the first quarter.

Smith also said that its promise to employees that there would be no mass layoff has helped morale.

"You can't have fun if people are looking over their shoulder," he said.

PSS recorded an additional expense of $4.9 million in the quarter related to performance-related bonuses. Smith said 95 percent of employees are receiving bonuses.

That expense was offset by $3.6 million in pre-tax gains from the sale of securities and a $1.6 million pre-tax gain from Swine flu-related product sales. Those sales included surgical masks and gloves and flu-testing kits.

Smith said Swine flu-related sales have pretty much stopped during the summer, but he is expecting to see them pick up again by the winter.

"I think Swine flu will have an impact, but I don't know which quarter," he said.

PSS's first-quarter earnings per share were two cents higher than the average forecast of 21 cents by analysts surveyed by Thomson Financial. The earnings report was issued after the stock market closed Wednesday. PSS's stock, which rose 32 cents to $18.92 Wednesday, has been on an upswing recently, trading at its highest level since the beginning of January.

mark.basch@jacksonville.com,

(904) 359-4308

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