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Steris (STE) Down 6.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Steris (STE). Shares have lost about 6.1% 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 catalysts.

STERIS’ Earnings & Revenues Surpass Estimates in Q3

STERIS reported third-quarter fiscal 2021 adjusted earnings per share of $1.73, up 19.3% year over year. The metric beat the Zacks Consensus Estimate by 10.9%.

The adjustment excludes the impact of certain non-recurring charges like COVID-19-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 $1.33, up 8.1% year over year.

Revenues in Detail

Revenues of $808.9 million improved 4.5% year over year in the quarter. Further, the metric exceeded the Zacks Consensus Estimate by 1.7%. The year-over-year uptick was led by robust sales in all of the company’s three reporting segments.

Organic revenues at CER rose 1% year over year in fiscal third quarter.

Quarter in Detail

The company operates through three segments — Healthcare, AST and Life Sciences.

Revenues at Healthcare rose 2.4% year over year to $521.7 million (down 1.1% on a CER organic basis). In the quarter under review, service revenues rose by 1% and consumable revenues increased 14%. Meanwhile, capital equipment revenues fell 5%.

Revenues at AST improved 12.9% to $176.5 million (up 10.2% at CER organic basis). CER organic revenues reflected increased demand from medical device customers on a rebound in procedure volumes during the quarter.

Revenues at the Life Sciences segment rose 1.9% to $115.7 million (flat at CER organic basis) on 7% growth in consumable revenues and 5% rise in service revenues. However, this was offset by a 9% decline in capital equipment revenues.

Margins

Gross profit in the reported quarter was $345.9 million, up 4.1% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin contracted 15 basis points (bps) year over year to 42.8% in the reported quarter.

STERIS witnessed a 5.5% year-over-year uptick in selling, general and administrative expenses to $182.4 million. Research and development expenses, however, dipped 0.3% to $16.4 million. Adjusted operating expenses of $198.8 million rose 4.9% year over year.

Adjusted operating profit totaled $147.1 million, reflecting a 2.9% rise from the prior-year quarter. Meanwhile, adjusted operating margin in fiscal third quarter also contracted 26 bps to 18.2%.

Financial Details

STERIS exited fiscal third quarter with cash and cash equivalents of $252.5 million compared with $312 million at the end of fiscal second quarter.

Cumulative net cash flow from operating activities at the end of fiscal third quarter was $501.8 million compared with $391.3 million a year ago.

The company’s free cash flow at the end of third-quarter fiscal 2021 was $337.7 million compared with $238.1 million in the year-ago period. Capital expenditure of the company at the end of the reported quarter was $164.5 million, up from $153.6 million in the year-ago period.

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

Guidance

STERIS, due to uncertainties tied to the duration and impact of the pandemic on its operations, is not issuing any financial outlook for fiscal 2021 at the moment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates.

VGM Scores

At this time, Steris has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. 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

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. 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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