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It has been about a month since the last earnings report for Steris (STE). Shares have lost about 3.2% 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 the most recent earnings report in order to get a better handle on the important drivers.
STERIS Q2 Earnings Surpass Estimates, Margins Down
STERIS reported second-quarter fiscal 2022 adjusted earnings per share of $1.99, up 34.5% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 8.7%.
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 earnings per share was 69 cents compared with the year-ago earnings per share of $1.23, reflecting a decline of 78.3% year over year.
Revenues in Detail
Revenues of $1.19 billion improved 58.3% year over year in the quarter. Further, the metric exceeded the Zacks Consensus Estimate by 3.1%. 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 12% year over year in the fiscal second quarter.
Quarter in Detail
The company operates through four segments — Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.
Revenues at Healthcare rose 58% year over year to $744.1 million (up 10% on a CER organic basis) on a 120% increase in consumable revenues, a 25% rise in service revenues and a 54% improvement in capital equipment revenues.
Revenues at Applied Sterilization Technologies improved 21% to $204.9 million (up 19% 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 14% to $132.3 million (up 7% at CER organic basis) on 17% growth in capital equipment revenues and a 19% rise in service revenues and an 11% increase in consumable revenues.
The Dental segment reported revenues of $115.6 million.
Gross profit in the reported quarter was $480.3 million, up 45.5% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin contracted 352 basis points (bps) year over year to 40.1% in the reported quarter.
STERIS witnessed a 99.6% year-over-year surge in selling, general and administrative expenses to $344.8 million. Research and development expenses rose 16.7% to $18.8 million. Adjusted operating expenses of $363.6 million escalated 92.6% year over year.
Accordingly, adjusted operating profit totaled $116.7 million, reflecting a 17.3% fall from the prior-year quarter. Adjusted operating margin contracted 892 bps to 9.8%.
STERIS exited second-quarter fiscal 2022 with cash and cash equivalents of $383.5 million compared with $220.5 million at the end of first-quarter fiscal 2021.
Cumulative net cash flow from operating activities at the end of second-quarter fiscal 2022 was $268.8 million compared with $296.1 million a year ago.
The company’s free cash flow at the end of the fiscal second quarter was $135.8 million compared with $185.6 million in the year-ago period.
The company approved a quarterly interim dividend of 43 cents per share to shareholders.
Further, the company has a five-year annualized dividend growth rate of 9.18%.
STERIS has reinstated its financial guidance for fiscal 2022.
The company expects constant currency organic revenue growth in the range of 10-11%. The Zacks Consensus Estimate for the same is pegged at $4.60 billion.
Adjusted earnings per diluted share are anticipated in the band of $7.60-$7.85. The Zacks Consensus Estimate for the metric is pegged at $7.70.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, 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.
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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