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STERIS (STE) Q2 Earnings Miss Estimates, Margins Increase

STERIS plc STE reported second-quarter fiscal 2023 adjusted earnings per share (EPS) of $1.99, in line with the year-ago figure. The metric missed the Zacks Consensus Estimate by 0.5%.

The adjustment excludes the impacts of certain non-recurring charges like the amortization of acquired intangible assets, acquisition and integration-related charges, and the amortization of inventory and property step up to fair value among others.

The company’s GAAP loss per share was $3.15, a significant plunge from the year-ago earnings of 69 cents.

Revenues in Detail

Revenues of $1.20 billion were flat year over year in the quarter. The metric, however, missed the Zacks Consensus Estimate by 1.8%.

Organic revenues at constant exchange rate or CER rose 7% year over year in the fiscal second quarter.

Quarter in Detail

The company operates through four segments — Healthcare, Applied Sterilization Technologies (AST), Life Sciences and Dental.

Revenues at Healthcare declined 2% year over year to $732.8 million (up 7% on a CER organic basis). The year-over-year decline in reported revenues was due to the impact ofthe divestiture of the Renal Care business and foreign exchange headwind. This performance reflected a 5% improvement in capital equipment revenues and a 1% increase in service revenues.

STERIS plc Price, Consensus and EPS Surprise

STERIS plc Price, Consensus and EPS Surprise
STERIS plc Price, Consensus and EPS Surprise

STERIS plc price-consensus-eps-surprise-chart | STERIS plc Quote

Revenues at AST improved 13% to $232.4 million (up 19% on a CER organic basis). Revenue growth was driven by increased demand from medical device and biopharma customers.

Revenues at the Life Sciences segment dropped 5% to $125.8 million (flat year over year on a CER organic basis). Service revenues grew 5%, which wasoffset by a 12% decrease in capital equipment revenues and a 7% decline in consumable revenues.

The Dental segment reported revenues of $109.6 million, down 5% year over year (down 3% on a CER organic basis). According to STERIS, revenues were limited by a reduction in volume and increased supply chain and inflationary costs.

Margins

Gross profit in the reported quarter was $532.3 million, up 10.8% from the prior-year quarter’s gross profit. Gross margin expanded 421 basis points (bps) year over year to 44.3% in the reported quarter.

STERIS witnessed a 6.3% year-over-year drop in selling, general and administrative expenses to $323.2 million. Research and development expenses rose 32.4% to $24.9 million. Adjusted operating expenses of $348.1 million declined 4.3% year over year. The adjusted operating margin expanded 559 bps to 15.3%.

Financial Details

STERIS exited the second quarter of fiscal 2023 with cash and cash equivalents of $258.3 million compared with $316.3 million at the end of the fiscal first quarter.

Cumulative net cash flow from operating activities at the end of fiscal Q2 was $335.6 million compared with $268.8 million a year ago.

Further, the company has a five-year annualized dividend growth rate of 8.54%.

Guidance

Based on foreign currency forward rates through Mar 31, 2023, STERIS now anticipates additional currency headwinds. The total FX impact on revenues is now expected to be approximately $150 million, an increase from prior expectations of $100 million. STERIS accordingly has updated its financial guidance for fiscal 2023.

Reported revenues are expected to increase approximately 8% from the earlier expectation of 9% growth. The company however, reiterated its constant currency organic revenue growth in fiscal 2023 at 10%.

The Zacks Consensus Estimate for revenues is pegged at $4.98 billion.

The adjusted earnings per share guidance was reiterated in the range of $8.40 to $8.60. However, the company noted that the high end of the range is less likely to be achieved due to additional currency headwinds. The Zacks Consensus Estimate for the metric is pegged at $8.51.

Our Take

STERIS exited second-quarter fiscal 2023 with earnings and revenues miss. During the quarter, the company faced significant foreign-exchange headwinds, apart from supply chain and inflation-related challenges. The lowered reported revenue growth guidance for fiscal 2023 indicates the continuation of this gloomy trend.

Barring AST, the poor reported revenue performance across three of STERIS’ operating segments is a major concern. However, organic revenue growth was seen in two major segments. The expansion in margins is an added advantage.

Zacks Rank and Key Picks

STERIS currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced quarterly results are AMN Healthcare Services, Inc. AMN, Medpace Holdings, Inc. MEDP and Merit Medical Systems, Inc. MMSI.

AMN Healthcare, carrying a Zacks Rank #2 (Buy), reported third-quarter 2022 adjusted EPS of $2.57, which beat the Zacks Consensus Estimate by 10.3%. Revenues of $1.14 billion outpaced the consensus mark by 3.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed estimates in all the trailing four quarters, the average being 10.9%.

Medpace Holdings, sporting a Zacks Rank #1, reported third-quarter 2022 EPS of $2.05, which beat the Zacks Consensus Estimate by 39.5%. Revenues of $383.7 million outpaced the consensus mark by 8.1%.

Medpace Holdings has an estimated growth rate of 44.9% for the full-year 2022. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average being 22%.

Merit Medical, carrying a Zacks Rank #2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.


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