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STERIS (STE) Surpasses Q3 Earnings Estimates, Ups FY20 View

Zacks Equity Research

STERIS plc STE reported third-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.45, up 15.1% year over year. The metric beat the Zacks Consensus Estimate by 1.4%.

The company’s GAAP (reported) EPS was $1.23, up by a huge margin of 119.6% year over year.

Revenues of $774.3 million increased 11.2% year over year in the quarter, beating the Zacks Consensus Estimate by 3.3%.

STERIS plc Price, Consensus and EPS Surprise

 

STERIS plc Price, Consensus and EPS Surprise

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


Quarter in Detail

Organic revenue growth at constant currency or CER was 12% year over year in the fiscal third quarter, mainly driven by growth across all segments, backed by strong underlying customer demand.

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

Revenues at Healthcare Products increased 8% year over year to $365.4 million (up 8.1% on a CER organic basis). In the quarter under review, service revenues grew 9% and capital equipment revenues rose 3%. Meanwhile, consumable revenues grew 13%.

Revenues in the Healthcare Specialty Services segment were up 12.6% to $143.9 million (up 13.9% on a CER organic basis).

Revenues at Applied Sterilization Technologies climbed 14.3% to $156.3 million (up 15.1% at CER organic basis), backed by increased demand from core medical device customers.

Revenues in the Life Sciences segment increased 16.4% to $108.8 million (up 17% at CER organic basis) on 13% growth in consumable revenues along with a 6% rise in service revenues and 36% growth in capital equipment revenues.

The company approved a quarterly interim dividend of 37 cents per share to shareholders.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 38 basis points (bps) year over year to 42.9% in the reported quarter.

STERIS witnessed an 8.4% year-over-year decline in selling, general and administrative expenses to $172.9 million. Research and development expenses flared up 8.7% to $16.5 million. Overall, adjusted operating margin expanded 338 bps year over year to 18.4% in the quarter.

Financial Details

STERIS exited the fiscal third quarter with cash and cash equivalents of $199.2 million compared with $225.5 million witnessed at the end of second-quarter fiscal 2020.

Cumulative cash flow from operating activities was $391.3 million at the end of the fiscal third quarter compared with $360.6 million in the year-ago period.

Guidance

The company raised the projection for fiscal 2020 adjusted EPS, which is now at the high-end of the previously mentioned $5.50-5.65. The Zacks Consensus Estimate for fiscal 2020 adjusted EPS is pegged at $5.58.

Organic revenue growth at CER is now expected to be 9%, marking a rise from 7.5-8.5% stated earlier. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.99 billion.

The company also anticipates a negative impact of $20 million on reported revenues in fiscal 2020, resulting from currency fluctuations. Earlier, it predicted an impact of $25 million.

Our Take

STERIS exited third-quarter fiscal 2020 with better-than-expected results. The company witnessed solid revenue growth across each of its operating segments, which is encouraging. Contributions from elevated consumer demand, and a broader portfolio of products and services bode well for the company. Expansion of both margins during the quarter is also encouraging. In addition, increased fiscal 2020 guidance instills investors’ confidence in the stock.

However, a decline in free cash flow mainly due to increased capital spending and adverse foreign exchange impact on revenues are concerning.

Zacks Rank and Key Picks

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

Some stocks that reported solid results this earnings season are Stryker Corporation SYK, Accuray Incorporated ARAY and ResMed Inc. RMD.

Stryker delivered fourth-quarter 2019 adjusted EPS of $2.49, outpacing the Zacks Consensus Estimate by 1.2%. Its fourth-quarter revenues of $4.13 billion surpassed the Zacks Consensus Estimate by 0.7%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Accuray reported second-quarter fiscal 2020 adjusted earnings per share (EPS) of a penny, whereas the Zacks Consensus Estimate was pegged at a loss of 7 cents. Net revenues of $98.8 million outpaced the Zacks Consensus Estimate by 0.3%. The company currently sports a Zacks Rank #1.

ResMed, with a Zacks Rank #1, reported second-quarter fiscal 2020 adjusted EPS of $1.21, surpassing the Zacks Consensus Estimate by 19.8%. Its revenues of $736.2 million outpaced the consensus mark by 1.5%.

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