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STERIS (STE) Gains on New Orders, FX Impact Dents Growth

STERIS STE currently benefits from the healthcare backlog as hospital capital spending remains robust. Yet, the continued adverse impact of currency translation hampers growth. The stock currently carries a Zacks Rank #3 (Hold).

In the past year, STERIS has outperformed the industry it belongs to. The stock has lost 16.1% compared with the industry’s 22.5% fall.

STERIS’ second-quarter fiscal 2023 constant currency organic revenue increased 7% year over year driven by volume and 290 basis points favorable impact of price. Within Healthcare, constant currency organic revenue rose 7%.

The company currently expects to see significant levels of capital shipments in the second half based on its backlog and the inventory of key components. Hospital capital spending remained robust in the quarter, as evidenced by the Healthcare backlog, which totaled over $500 million at the end of the quarter. Orders for the quarter were approximately 60% for replacement products and 40% for large projects.

The integration of Cantel Medical continued successfully. STERIS achieved approximately $15 million of cost synergies in the fiscal second quarter, bringing the first-half total to about $35 million. Currently, STERIS is on track to achieve its stated goal of approximately $50 million of cost synergies in fiscal 2023.

In the second quarter of fiscal 2023, organic revenues improved 7% year over year led by robust sales across the company’s Healthcare and AST segments. Organic revenues at Healthcare rose 7%, reflecting a 5% improvement in capital equipment revenues and a 1% increase in service revenues.

Revenues at Applied Sterilization Technologies (AST) increased 19% organically, driven by increased demand from medical device and biopharma customers. Within Life Sciences, the company delivered strong service revenue growth despite revenues being flat organically.

STERIS plc Price


STERIS plc Price
STERIS plc Price

STERIS plc price | STERIS plc Quote


On the flip side, STERIS exited second-quarter fiscal 2023 with earnings and revenues miss. During the quarter, the company faced significant foreign-exchange headwinds, apart from supply chain and inflation-related challenges.

Barring AST, the poor reported revenue performance across three of STERIS’ operating segments is a serious concern. Consumable growth is limited due to a lack of procedure growth on a year-over-year basis. Within Life Sciences, service revenue growth was offset by declines in both capital and consumables.

Dental segment revenue was limited by supply chain challenges.

Fluctuations partially affect STERIS’ revenues, exhibiting the negative effects of the strengthening dollar that has been hurting similar companies in overseas markets. During the second-quarter fiscal 2023 earnings call, the company noted that the total FX impact on fiscal 2023 revenues is now expected to be approximately $150 million, up from the prior expectations of $100 million.

The lowered reported revenue growth guidance for fiscal 2023 indicates the continuation of this gloomy trend.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are ShockWave Medical, Inc. SWAV, Orthofix Medical Inc. OFIX and Merit Medical System MMSI.

ShockWave Medical, sporting a Zacks Rank #2 (Buy) at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 35% against the industry’s 32.6% fall in the past year. Orthofix Medical, currently sporting a Zacks Rank #1 (Strong Buy), reported third-quarter 2022 adjusted earnings per share (EPS) of 13 cents. The bottom line beat the Zacks Consensus Estimate by a stupendous 550%. Revenues of $114 million outpaced the consensus mark by 2.7%.

Orthofix Medical has an estimated next-year growth rate of 58.97%. MMSI’s earnings surpassed estimates in the trailing three quarters and missed in one, the average being 129.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Merit Medical, carrying a Zacks Rank of 2, reported third-quarter 2022 adjusted EPS of 64 cents, which beat the Zacks Consensus Estimate by 20.8%. Revenues of $287.2 million outpaced the consensus mark by 5.2%.

Merit Medical has an estimated long-term growth rate of 11%. MMSI’s earnings surpassed estimates in all the trailing four quarters, the average being 25.4%.

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