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Steris (STE) Down 0.8% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Steris (STE). Shares have lost about 0.8% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Steris due for a breakout? 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 Q1 Earnings Match Estimates, Cuts View

STERIS reported first-quarter fiscal 2023 adjusted earnings per share of $1.90, which rose 7.9% from the year-ago figure. The metric came in line with the Zacks Consensus Estimate.

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 $1.10, a significant jump from the year-ago loss of 24 cents.

Revenues in Detail

Revenues of $1.16 billion improved 19% year over year in the quarter. The metric, however, missed the Zacks Consensus Estimate by 5.7%. The year-over-year uptick was led by robust sales across the company’s Healthcare, AST and Life Sciences segments.

Organic revenues at constant currency or CER rose 6% year over year in the fiscal first quarter.

Quarter in Detail

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

Revenues at Healthcare rose 16% year over year to $698.5 million (up 4% on a CER organic basis) on a 22% increase in consumable revenues, a 19% rise in capital equipment revenues and a 9% increase in service revenues.

Revenues at AST improved 6% to $220.9 million (up 10% 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 9% to $132.2 million (up 10% on a CER organic basis) on 5% growth in consumable revenues, a 24% rise in capital equipment revenues and flat service revenues.

The Dental segment reported revenues of $104.8 million. According to STERIS, revenues were somewhat limited by supply chain challenges and foreign currency fluctuations in the quarter.

Margins

Gross profit in the reported quarter was $517.8 million, up 21.5% from the prior-year quarter’s gross profit. Gross margin expanded 76 basis points (bps) year over year to 44.8% in the reported quarter.

STERIS witnessed a 15% year-over-year drop in selling, general and administrative expenses to $334.6 million. Research and development expenses rose 36.1% to $24.8 million. Adjusted operating expenses of $359.4 million declined 12.7% year over year. The adjusted operating margin expanded 1222 bps to 13.7%.

Financial Details

STERIS exited the first quarter of fiscal 2023 with cash and cash equivalents of $316.3 million compared with $348.3 million at the end of fiscal 2022.

Cumulative net cash flow from operating activities at the end of fiscal Q1 was $231.7 million compared with $97.4 million a year ago.

The company’s free cash flow at the end of the fiscal first quarter was $117.1 million compared with $41.2 million in the year-ago period.

Further, the company has a five-year annualized dividend growth rate of 8.18%.

Guidance

STERIS updated its financial guidance for fiscal 2023.

The company now projects constant-currency organic revenue growth in fiscal 2023 of 10% (compared to the earlier expectation of 11% growth). The revision reflects the ongoing supply chain challenges and lighter-than-anticipated procedure volumes. Reported revenues are expected to increase approximately 9%, reflecting the net impact of acquisitions and divestitures as well as approximately $100 million in anticipated negative impact of foreign currency fluctuations.

The Zacks Consensus Estimate for revenues is pegged at $5.12 billion.
Adjusted earnings per share are now anticipated to be in the range of $8.40 to $8.60 (down from $8.55-$8.75 earlier). The Zacks Consensus Estimate for the metric is pegged at $8.71.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -5.23% due to these changes.

VGM Scores

At this time, Steris has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Steris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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