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

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STERIS plc STE reported first-quarter fiscal 2022 adjusted earnings per share (EPS) 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 EPS 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.

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

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.

Our Take

STERIS exited first-quarter fiscal 2022 on a bullish note with better-than-expected results. The year-over-year growth in revenues and earnings looks encouraging. Solid revenue growth across three of its reporting segments amid the post-pandemic recovery contributed to the top line. Elevated demand from medical device customers drove CER organic revenues growth in the Applied Sterilization Technologies segment. Ongoing integration efforts for Cantel Medical buoy optimism for the stock. Expansion in gross margin is another upside. Further, the company has raised its fiscal 2022 guidance, which is indicative that this growth momentum will continue.

However, escalating operating costs and contraction in operating margin during the quarter are concerning. The year-over-year decline in free cash flow given anticipated costs associated with the Cantel Medical acquisition does not bode well either.

Zacks Rank and Key Picks

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

Some better-ranked stocks in the broader medical space that have announced their quarterly results are Encompass Health Corporation EHC, West Pharmaceutical Services, Inc. WST and Henry Schein, Inc. HSIC.

West Pharmaceutical, carrying a Zacks Rank #1 (Strong Buy), reported second-quarter 2021 adjusted EPS of $2.46, which surpassed the Zacks Consensus Estimate by 41.4%. Revenues of $723.6 million outpaced the Zacks Consensus Estimate by 8.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Encompass Health, carrying a Zacks Rank #2 (Buy), reported second-quarter 2021 adjusted EPS of $1.17, which beat the Zacks Consensus Estimate by 15.8%. Revenues of $1.3 billion outpaced the consensus mark by 1.5%.

Henry Schein, sporting a Zacks Rank #2, reported second-quarter 2021 adjusted EPS of $1.11 surpassing the Zacks Consensus Estimate by 16.8%. Revenues of $2.97 billion topped the Zacks Consensus Estimate by 2.7%.


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