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Steris (STE) Up 5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Steris (STE). Shares have added about 5% in that time frame, outperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

STERIS Q4 Earnings Fall Shy of Estimates, FY22 View Up

STERIS reported fourth-quarter fiscal 2021 adjusted earnings per share of $1.63, flat with the year-ago figure. However, the metric lagged the Zacks Consensus Estimate by 9.4%.

The adjustment excludes the impact of certain non-recurring charges like COVID-led incremental costs, amortization of acquired intangible assets, acquisition and integration-related charges, and amortization of property step up to fair value.

The company’s GAAP earnings per share was $1.02, down 28.7% year over year.

Full-year adjusted earnings per share was $6.17, reflecting a 9.4% increase from the year-earlier $5.64. The metric missed the Zacks Consensus Estimate by 2.3%.

Revenues in Detail

Revenues of $873.5 million improved 6.1% year over year in the quarter. Further, the metric exceeded the Zacks Consensus Estimate by 0.3%. The year-over-year uptick was led by robust sales in all of the company’s three reporting segments.

Organic revenues at constant currency or CER rose 0.3% year over year in the fiscal fourth quarter.

Full-year revenues totaled $3.11 billion, reflecting a 2.5% increase from the year-ago period. Revenues beat the Zacks Consensus Estimate by 0.3%.

Quarter in Detail

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

Revenues at Healthcare rose 2.8% year over year to $561.8 million (down 4.2% on a CER organic basis). This performance reflected a 25% increase in consumable revenues, driven by the addition of $32.1 million in revenues from Key Surgical. Meanwhile, service revenues and capital equipment revenues fell 4%.

Revenues at Applied Sterilization Technologies improved 14.6% to $187.5 million (up 10.1% at CER organic basis). CER organic revenues reflected increased demand from medical device customers during the quarter.

Revenues at the Life Sciences segment rose 10.2% to $124.2 million (up 7.5% at CER organic basis) on 43% growth in capital equipment revenues and 5% growth in service revenues. This was offset by a 4% decline in consumable revenues.

Margins

Gross profit in the reported quarter was $379.7 million, up 4.6% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin contracted 63 basis points (bps) year over year to 43.5% in the reported quarter.

STERIS witnessed a 16.9% year-over-year uptick in selling, general and administrative expenses to $221.1 million. Research and development expenses, however, rose 1.7% to $17.5 million. Adjusted operating expenses of $238.6 million, rose 15.7% year over year.

Adjusted operating profit totaled $141.1 million, reflecting a 9.9% fall from the prior-year quarter. Meanwhile, adjusted operating margin also contracted 287 bps to 16.2%.

Financial Details

STERIS exited 2021 with cash and cash equivalents of $220.5 million compared with $319.6 million at the end of 2020.

Cumulative net cash flow from operating activities at the end of 2021 was $689.6 million compared with $590.6 million a year ago.

The company’s free cash flow at the end of 2021 was $450.9 million compared with $380.2 million in the year-ago period. Capital expenditure of the company at the end of 2021 was $239.3 million, up from $214.5 million in the year-ago period.

The company approved a quarterly interim dividend of 40 cents per share to shareholders.

Guidance

STERIS has provided financial guidance for fiscal 2022. The guidance includes business integration of the ongoing Cantel Medical buyout. The acquisition is expected to get completed on Jun 2.

The company expects reported revenues to be nearly $4.5 billion while constant currency organic revenue growth is projected in the range of 8-9% for fiscal 2022. The Zacks Consensus Estimate for the same is pegged at $3.74 billion.

Adjusted earnings per diluted share are anticipated in the band of $7.40-$7.65. The Zacks Consensus Estimate for the metric is pegged at $6.97.

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. The consensus estimate has shifted -6.25% due to these changes.

VGM Scores

Currently, Steris has a subpar Growth Score of D, however its Momentum Score is doing a lot better with a B. Charting a somewhat similar path, 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

Steris has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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