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STERIS (STE) Up 3.1% Since Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for STERIS PLC STE. Shares have added about 3.1% in that time frame, outperforming the market.

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

Recent Earnings

Steris reported third-quarter fiscal 2017 adjusted earnings per share (EPS) of $0.98, in line with the year-ago quarter. The adjusted EPS figure, however, missed the Zacks Consensus Estimate by 5.8%.

The company reported net loss of $0.06 per share against net income of $0.26 in the year-ago quarter.  

Revenues in Details

Steris generated revenues of $646.8 million, up 5% year over year. The top line, however, missed the Zacks Consensus Estimate of $681 million.

Foreign currency fluctuations adversely impacted the quarter's revenues by 170 basis points (bps). Constant currency organic revenue growth (excluding acquisitions and divestitures) was 3% primarily driven by volume, offset by 40 bps impact from unfavorable price.

The company has been operating through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues from the Healthcare Products segment climbed 2% year over year to $323.4 million in the reported quarter. Organic revenues were up 4% at CER, mainly on mid-single digit growth across capital equipment, consumables (up 7% at CER) and service revenues (up 4%).

Revenues from the Healthcare Specialty Services segment improved 3% to $133.5 million both on reported and adjusted CER basis. This reflects a 4% revenue growth at IMS and mid-teens revenue growth from the legacy Synergy CSD outsourcing business in Europe, offset by lower growth from legacy Synergy Linen and Sterilmed businesses.

On the other hand, revenues from Applied Sterilization Technologies improved 22.4% to $110.4 million, driven by synergies from Synergy Health and solid organic revenue growth of 6% at CER.

Lastly, revenues from the Life Sciences segment declined 5% to $78.3 million in the quarter, as 4% growth in consumable revenues and 8% increase in service revenues were more than offset by the lumpy capital equipment shipments, which were down 29% in the quarter. On a constant currency organic basis revenues declined 6% year over year.

Margins

Adjusted gross margin improved 80 bps year over year to 40.1% in the reported quarter, favorably impacted by a 140 bps improvement from divestitures, 60 bps improvement due to foreign currency, 30 bps from the suspension of the medical device excise tax, and 10 bps from other items, offset by a 160 bps impact of the accounting policy changes related to Synergy Health business inclusion.

Steris witnessed a 10.5% year-over-year decrease in selling, general and administrative expenses to $158.8 million. However, research and development expenses rose 1.8% to $14.6 million. Adjusted operating margin expanded 551 bps on a year-over-year basis to 13% in the reported quarter.

Financial Details

Steris exited the fiscal third quarter with cash and cash equivalents of $264.9 million compared with $254.3 million in the prior-year quarter. The company had long-term debt of $1.51 billion at the end of the quarter, compared with $1.50 billion at the prior-quarter end.

The company generated $289.4 million in cash flow from operations on a year-to-date basis, up 176.7% from the year-ago period. Capital expenditures totaled $112.2 million resulting in free cash flow of $181.9 million, compared with $22.9 million a year ago.

Guidance

Reflecting a lower-than-expected third-quarter performance, Steris lowered its revenue guidance for fiscal 2017. The company currently expects to witness revenue growth of 17%, compared with the previous guidance of 19–20%.

The company has also lowered its fiscal 2017 adjusted EPS projection to the band of $3.70–$3.76 from earlier range of $3.85–$4.00.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been three revisions lower for the current quarter. In the past month, the consensus estimate has shifted lower by 9.04% due to these changes.

STERIS PLC Price and Consensus

 

STERIS PLC Price and Consensus | STERIS PLC Quote

VGM Scores

At this time, STERIS' stock has a subpar Growth Score of 'D', however its Momentum is doing a bit better with a 'C'. Following the exact same course, the stock was allocated also 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 'D'. If you aren't focused on one strategy, this score is the one you should be interested in.

Zacks' style scores indicate that the company's stock is suitable for value and momentum investors.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift.  Notably, the stock has a Zacks Rank #3 (Hold). We are looking for inline return from the stock in the next few months.


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