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STERIS' (STE) Earnings & Revenues Surpass Estimates in Q1

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STERIS plc STE reported first-quarter fiscal 2021 adjusted earnings per share (EPS) of $1.31, up 6.5% year over year. The metric beat the Zacks Consensus Estimate by 35.1%.

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 EPS was $1.03, up 4% year over year.

Revenues in Detail

Revenues of $668.9 million declined 3.9% year over year in the quarter. However, the metric exceeded the Zacks Consensus Estimate by 4.5%. The year-over-year drop was led by decline in sales in two of the company’s three reporting segments.

Organic revenues at constant currency or CER fell 3.4% year over year in the fiscal first quarter.

STERIS plc Price, Consensus and EPS Surprise

 

STERIS plc Price, Consensus and EPS Surprise
STERIS plc Price, Consensus and EPS Surprise

STERIS plc price-consensus-eps-surprise-chart | STERIS plc Quote

Quarter in Detail

The company operates through three segments — Healthcare, Applied Sterilization Technologies and Life Sciences. For investors’ note, the earlier-reported Healthcare Products and Healthcare Specialty Services segments have been combined and reported as one segment, Healthcare (effective Apr 1, 2020).

Revenues at Healthcare fell 10.3% year over year to $399.7 million (down 9.8% on a CER organic basis). In the quarter under review, service revenues declined 10% and consumable revenues fell 28%. Meanwhile, capital equipment revenues rose 6%.

Revenues at Applied Sterilization Technologies fell 1.2% to $152.4 million (down 0.2% at CER organic basis). CER organic revenues reflected increased demand for personal protective equipment products, which offset the impact of reduced volumes from the segment’s core medical device customers.

Revenues at the Life Sciences segment rose 20.8% to $116.9 million (21.5% at CER organic basis) on 34% growth in consumable revenues, 6% rise in service revenues and 14% improvement in capital equipment revenues. The segment was driven by continued robust performance from increased demand from pharma customers focused on vaccines and biologics.

Margins

Gross profit in the reported quarter was $285.6 million, down 6.9% from the prior-year quarter adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin contracted 133 basis points (bps) year over year to 42.7% in the reported quarter.

STERIS witnessed a 13.2% year-over-year contraction in selling, general and administrative expenses to $155.2 million. Research and development expenses increased 4.1% to $16.2 million. Adjusted operating expenses of $171.4 million fell 11.8% year over year.

Adjusted operating profit totaled $114.2 million, reflecting a 1.6% rise from the prior-year quarter. Further, adjusted operating margin in the first quarter expanded 94 bps to 17.1%.

Financial Details

STERIS exited the fiscal first quarter with cash and cash equivalents of $255.6 million compared with $319.6 million at the end of 2020.

Net cash flow from operating activities at the end of the fiscal first quarter was $134.1 million compared with $109.3 million a year ago.

The company’s free cash flow at the end of first-quarter fiscal 2021 was $67.4 million compared with $59.6 million in the year-ago period. Capital expenditure of the company at the end of the reported quarter was $66.9 million, up from $49.8 million in the year-ago period.

The company approved a quarterly interim dividend of 40 cents per share to shareholders, which is the 15th consecutive year of dividend increases.

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.

Our Take

STERIS exited first-quarter fiscal 2021 with better-than-expected results. The company witnessed solid revenue growth across its Life Sciences segment despite the coronavirus pandemic. Contributions from elevated consumer demand and a broader portfolio of products and services are encouraging. Expansion in adjusted operating margin during the quarter is also promising. An increase in free cash flow despite increased capital spending instills optimism.

However, a decline in top line on disappointing performance by two of the company’s reporting segments is concerning. Contraction in gross margin does not bode well as well. The company’s decision to not provide any financial guidance for fiscal 2021 is also worrying.

Zacks Rank and Stocks to Consider

STERIS currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Hologic, Inc. HOLX.

West Pharmaceutical reported second-quarter 2020 adjusted EPS of $1.25, beating the Zacks Consensus Estimate by 37.4%. Net revenues of $527.2 million outpaced the consensus estimate by 6.9%. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Thermo Fisher, a Zacks Rank #2 (Buy) company, reported second-quarter 2020 adjusted EPS of $3.89, beating the Zacks Consensus Estimate by 45.7%. Revenues of $6.92 billion outpaced the consensus mark by 0.1%.

Hologic reported third-quarter fiscal 2020 adjusted EPS of 75 cents, surpassing the Zacks Consensus Estimate by a stupendous 108.3%. Net revenues of $822.9 million exceeded the Zacks Consensus Estimate by 37.1%. It currently sports a Zacks Rank #1.

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