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Steris (STE) Down 1.5% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Steris (STE). Shares have lost about 1.5% in that time frame, underperforming 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 its most recent earnings report in order to get a better handle on the important catalysts.

STERIS (STE) Q1 Earnings Beat Estimates, 2022 Guidance Up

STERIS plc (STE) reported first-quarter fiscal 2022 adjusted earnings per share of $1.76, up 33.3% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 17.3%.

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

The company’s GAAP loss per share was 24 cents against the year-ago earnings per share of $1.05.

Revenues in Detail

Revenues of $968.4 million improved 44.8% year over year in the quarter. Further, the metric exceeded the Zacks Consensus Estimate by 12.9%. The year-over-year uptick was led by robust sales across three of the company’s reporting segments.

Organic revenues at constant currency or CER rose 21% year over year in the fiscal first quarter.

Quarter in Detail

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

Revenues at Healthcare rose 50.8% year over year to $602.8 million (up 25% on a CER organic basis) on a 147% increase in consumable revenues, a 31% rise in service revenues and an 18% improvement in capital equipment revenues.

Revenues at Applied Sterilization Technologies improved 37.1% to $208.9 million (up 27% at CER organic basis). CER organic revenues growth was driven by increased demand from medical device customers during the quarter.

Revenues at the Life Sciences segment rose 3.9% to $121.5 million (down 1% at CER organic basis) on 8% growth in capital equipment revenues and 17% growth in service revenues. This was offset by a 4% decline in consumable revenues.

The Dental segment reported revenues of $35.2 million, which represents one month of financial performance.

Margins

Gross profit in the reported quarter was $426.3 million, up 48.3% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 106 basis points (bps) year over year to 44% in the reported quarter.

STERIS witnessed a huge 153.8% year-over-year surge in selling, general and administrative expenses to $393.8 million. Research and development expenses rose 12.1% to $18.2 million. Adjusted operating expenses of $411.9 million escalated 140.3% year over year.

Accordingly, adjusted operating profit totaled $14.3 million, reflecting an 87.6% fall from the prior-year quarter. Adjusted operating margin contracted 1586 bps to 1.5%.

Financial Details

STERIS exited first-quarter fiscal 2022 with cash and cash equivalents of $534.8 million compared with $220.5 million at the end of fiscal 2021.

Cumulative net cash flow from operating activities at the end of first-quarter fiscal 2022 was $97.4 million compared with $134.1 million a year ago.

The company’s free cash flow at the end of the fiscal first quarter was $41.2 million compared with $67.4 million in the year-ago period. Capital expenditure of the company at the end of fiscal first quarter was $56.4 million, down from $66.9 million in the year-ago period.

The company approved a quarterly interim dividend of 43 cents per share to shareholders.

Guidance

STERIS has raised its financial guidance for fiscal 2022.

The company expects revenues to be nearly $4.6 billion compared to the May-announced figure of $4.5 billion on a reported basis. Constant currency organic revenue growth is projected in the range of 10-11% versus the previous expectation of 8-9% for fiscal 2022, reflecting revenue recovery across the business, with specific strength in Healthcare and AST. The Zacks Consensus Estimate for the same is pegged at $4.51 billion.

Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85 compared to the previously-announced guidance of $7.40-$7.65. The Zacks Consensus Estimate for the metric is pegged at $7.50.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Steris has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, 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 this revision 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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