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Steris (STE) Up 1.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Steris (STE). Shares have added about 1.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

STERIS Q4 Earnings Surpass Estimates, Gross Margin Rises

STERIS reported fourth-quarter fiscal 2022 adjusted earnings per share of $2.04, rising 25.2% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 2%.

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.

The company’s GAAP earnings per share was 52 cents, down 49% from the year-ago EPS of $1.02.

For the full year, adjusted earnings were $7.92 per share, growing 28.4% from the year-ago period. It also beat the Zacks Consensus Estimate by 0.3%.

Revenues in Detail

Revenues of $1.21 billion improved 38.6% year over year in the quarter. The metric beat the Zacks Consensus Estimate by 2.6%. The year-over-year uptick was led by robust sales across three of the company’s reporting segments.

Organic revenues at constant currency or CER rose 11% year over year in the fiscal fourth quarter.

Full-year revenues were $4.59 billion, reflecting a 47.5% increase from the year-ago period. Revenues surpassed the Zacks Consensus Estimate by 0.9%.

Quarter in Detail

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

Revenues at Healthcare rose 32% year over year to $738.8 million (up 7% on a CER organic basis) on a 63% increase in consumable revenues, a 21% rise in service revenue and a 17% improvement in capital equipment revenues.

Revenues at Applied Sterilization Technologies improved 19% to $222.9 million (up 22% on a CER organic basis). CER organic revenue growth was driven by increased demand from medical device and biopharma customers.

Revenues at the Life Sciences segment rose 15% to $143.3 million (up 12% on a CER organic basis) on 18% growth in consumable revenues, a 13% rise in capital equipment revenues and a 14% increase in service revenues.

The Dental segment reported revenues of $105.7 million.

Margins

Gross profit in the reported quarter was $571.6 million, up 50.5% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 373 bps year over year to 47.2% in the reported quarter.

STERIS witnessed a 105.2% year-over-year surge in selling, general and administrative expenses to $453.6 million. Research and development expenses rose 49% to $26.1 million. Adjusted operating expenses of $479.7 million escalated 101.1% year over year.

Accordingly, adjusted operating profit totaled $91.9 million, reflecting a 34.9% decline from the prior-year quarter. The adjusted operating margin contracted 858 bps to 7.6%.

Financial Details

STERIS exited 2022 with cash and cash equivalents of $348.3 million compared with $220.5 million at the end of fiscal 2021.

Cumulative net cash flow from operating activities at the end of fiscal 2022 was $684.8 million compared with $689.6 million a year ago.

The company’s free cash flow at the end of the fiscal fourth quarter was $399 million compared with $450.9 million in the year-ago period.

Further, the company has a five-year annualized dividend growth rate of 9.12%.

Guidance

STERIS has provided its financial guidance for fiscal 2023.

The company projects constant-currency organic revenue growth of 11%. The Zacks Consensus Estimate for revenues is pegged at $4.89 billion.

Adjusted earnings per diluted share are anticipated to be $8.55-$8.75. The Zacks Consensus Estimate for the metric is pegged at $8.79.

How Have Estimates Been Moving Since Then?

Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.


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