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STERIS (STE) Q1 Earnings Match Estimates, EPS View Down

·5-min read

STERIS plc STE reported first-quarter fiscal 2023 adjusted earnings per share (EPS) 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 EPS 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.

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 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 reflectsthe 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.

Our Take

STERIS exited first-quarter fiscal 2023 with in-line earnings and a revenue miss. The company during the quarter faced significant supply chain and inflation-related challenges. The lowered earnings and organic growth guidance for fiscal 2023 indicates that this gloomy trend will continue.

However, strong performances across three of STERIS’ reporting segments contributed to top-line growth. The significant revenue contributions from acquisitions in the quarter buoy optimism. The expansion in gross margin 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 Quest Diagnostics Incorporated DGX, Medpace Holdings, Inc. MEDP and Merck & Co. MRK.

Quest Diagnostics, carrying a Zacks Rank #2 (Buy), reported second-quarter 2022 adjusted EPS of $2.36, which beat the Zacks Consensus Estimate by 9.8%. Revenues of $2.45 billion outpaced the consensus mark by 7.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Quest Diagnostics has an earnings yield of 7.1% compared with the industry’s 3.2%. DGX’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average being 12.1%.

Medpace Holdings, having a Zacks Rank #2, reported second-quarter 2022 adjusted EPS of $1.46, which beat the Zacks Consensus Estimate by 8.9%. Revenues of $351.2 million outpaced the consensus mark by 1.3%.

Medpace Holdings has an estimated growth rate of 22.7% for full-year 2022. MEDP’s earnings surpassed estimates in the trailing four quarters, the average being 17.3%.

Merck reported second-quarter 2022 adjusted earnings of $1.87 per share, beating the Zacks Consensus Estimate of $1.67. Revenues of $14.6 billion surpassed the Zacks Consensus Estimate by 5.4%. It currently has a Zacks Rank #2.

Merck has a long-term estimated growth rate of 10.1%. MRK’s earnings surpassed estimates in the trailing four quarters, the average surprise being 16.8%.


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