STERIS (STE) Q1 Earnings Beat Estimates, Gross Margin Falls
STERIS plc STE reported first-quarter fiscal 2024 adjusted earnings per share (EPS) of $2.00, up 5.3% from the year-ago quarter’s figure. The metric also exceeded the Zacks Consensus Estimate by 7.5%.
The adjustment excludes the impacts of certain non-recurring charges like the amortization of acquired intangible assets and acquisition and integration-related charges among others.
The company’s GAAP EPS was $1.25, up 13.6% from the year-ago quarter’s earnings.
Revenues in Detail
Revenues of $1.28 billion increased 11% year over year in the first quarter. The metric beat the Zacks Consensus Estimate by 7.8%.
Organic revenues at constant exchange rate or CER too rose 11% year over year in the fiscal first quarter.
STERIS plc Price, Consensus and EPS Surprise
STERIS plc price-consensus-eps-surprise-chart | STERIS plc Quote
Quarter in Detail
The company operates through four segments — Healthcare, Applied Sterilization Technologies (AST), Life Sciences and Dental.
Revenues at Healthcare rose 17% year over year to $818.9 million (up 18% on a CER organic basis). This performance reflected a 33% improvement in capital equipment revenues, a 12% increase in service revenues and an 11% rise in consumable revenues. Going by our model, the the projection for the Healthcare segment’s second-quarter organic growth was 5.8%.
Revenues at AST improved 6% to $233.1 million (up 5% on a CER organic basis). Revenue growth was limited by customer inventory management and the continued reduction in demand from bioprocessing customers. Our model estimated organic growth of 1.6% for this business in the second quarter.
Revenues in the Life Sciences segment dropped 1% to $131.4 million (down 1% year over year on a CER organic basis). A 4% increase in consumable revenues and a 20% increase in service revenues were offset by a 23% decline in capital equipment revenues in the reported quarter.
The Dental segment reported revenues of $101.2 million, down 3.4% year over year (down 4% on a CER organic basis).
Margins
Gross profit in the reported quarter was $573.5 million, up 10.7% from the prior-year quarter’s gross profit. Gross margin however contracted 13 basis points (bps) year over year to 44.6% in the reported quarter.
STERIS witnessed a 7.3% year-over-year rise in selling, general and administrative expenses to $359.1 million. Research and development expenses rose 3% to $25.5 million. Adjusted operating expenses of $384.6 million rose 7% year over year. The adjusted operating margin expanded 101 bps to 14.7%.
Financial Details
STERIS exited first-quarter fiscal 2024 with cash and cash equivalents of $208.6 million compared with $208.4 million at the end of the fiscal 2023 fourth quarter.
Cumulative net cash flow from operating activities at the end of fiscal first quarter was $281.1 million compared with $231.7 million a year ago.
Further, the company has a five-year annualized dividend growth rate of 7.98%.
Guidance
Considering the just-completed acquisition of the surgical instrumentation, laparoscopic instrumentation and sterilization container assets from Becton, Dickinson and Company or BD (BDX), STERIS updated its fiscal 2024 guidance.
STERIS now expects fiscal 2024 revenues to increase 9-10% from fiscal 2023 (earlier expectation was in the range of 7-8% growth). Organic revenue expectation at CER remains unchanged at 6-7%. The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.33 billion, implying 7.5% growth from fiscal 2023.
Adjusted earnings per share for fiscal 2024 are now expected in the range of $8.60 to $8.80 (earlier range was $8.55 to $8.75). The Zacks Consensus Estimate for the metric is pegged at $8.79.
Our Take
STERIS exited first-quarter fiscal 2024 with earnings and revenue beat. Barring Life Sciences and Dental, each of STERIS’s operating segments reported organic revenue growth, which is encouraging. Yet, escalating costs are putting pressure on gross profit.
In fiscal 2024, the company is optimistic about many of the challenges of fiscal 2023 abating, including procedure volumes and supply chain constraints. Meanwhile, the company is also optimistic about the recently completed acquisition of BD’s surgical instrumentation, laparoscopic instrumentation and sterilization container assets. According to STE, the successful integration of the acquired business will strengthen, complement and expand STERIS’s product offerings within its Healthcare segment.
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 quarterly results are Abbott Laboratories ABT, Elevance Health, Inc. ELV and Intuitive Surgical, Inc. ISRG.
Abbott, carrying a Zacks Rank of 2 (Buy), reported second-quarter 2023 adjusted EPS of $1.08, beating the Zacks Consensus Estimate by 3.8%. Revenues of $9.98 billion outpaced the consensus mark by 2.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Abbott has a long-term estimated growth rate of 5.1%. ABT’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 12.4%.
Elevance Health reported second-quarter 2023 adjusted EPS of $9.04, beating the Zacks Consensus Estimate by 2.5%. Revenues of $43.38 billion surpassed the Zacks Consensus Estimate by 4.5%. It currently carries a Zacks Rank #2.
Elevance Health has a long-term estimated growth rate of 12.1%. ELV’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 2.8%.
Intuitive Surgical reported second-quarter 2023 adjusted EPS of $1.42, beating the Zacks Consensus Estimate by 7.6%. Revenues of $1.76 billion surpassed the Zacks Consensus Estimate by 1.4%. It currently carries a Zacks Rank #2.
Intuitive Surgical has a long-term estimated growth rate of 14.5%. ISRG’s earnings surpassed estimates in three of the trailing four quarters and missed the same once, the average surprise being 4.2%.
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