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STERIS' (STE) Q2 Earnings Surpass Estimates, FY20 View Up

Zacks Equity Research

STERIS plc STE reported second-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.32, up 20% year over year. The metric beat the Zacks Consensus Estimate by 4.8%.

The company’s reported EPS came in at $1.11, up 21.9% year over year.

Revenues of $736.8 million increased 8.5% year over year in the quarter, beating the Zacks Consensus Estimate by 2.9%.

Quarter in Detail

Organic revenue growth at constant currency was 10% year over year in the fiscal second quarter, mainly driven by growth across all segments.

The company operates through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues at Healthcare Products increased 9% year over year to $350.3 million (up 9% on a constant currency organic basis). In the quarter under review, service revenues grew 10% and capital equipment revenues jumped 10%. Meanwhile, consumable revenues grew 7%.

 

STERIS plc Price, Consensus and EPS Surprise

STERIS plc Price, Consensus and EPS Surprise

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

 

Revenues in the Healthcare Specialty Services segment were up 8% to $135 million (up 11% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies climbed 13% to $152.9 million (up 14% at CER organic basis), backed by increased demand from core medical device customers.

Revenues in the Life Sciences segment increased 2% to $98.7 million (up 2% at CER organic basis) on 11% growth in consumable revenues, along with a 3% rise in service revenues. This was partially offset by an 11% decline in capital equipment revenues.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 132 basis points (bps) year over year to 43.2% in the reported quarter.

STERIS witnessed 8.4% year-over-year rise in selling, general and administrative expenses to $175.9 million. Research and development expenses flared up 3% to $16.2 million. Overall, adjusted gross margin expanded 146 bps, year over year, to 17.2% in the quarter.

Financial Details

STERIS exited the fiscal second quarter with cash and cash equivalents of $225.5 million compared with the $238.1 million witnessed at the end of first-quarter fiscal 2020. Year to date, net cash provided by operations was $260 million compared with $226.7 million at the end of the year-ago period.

Guidance

The company has raised its projection for fiscal 2020 adjusted EPS in the range of $5.50-5.65 from the earlier estimate of $5.38-5.53. The Zacks Consensus Estimate for fiscal 2020 adjusted EPS lies at $5.46, below the guided range.

Constant currency organic revenue growth is now expected to be in the range of 7.5-8.5% compared with the prior projection of 6-7%. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.95 billion.

Our Take

STERIS exited second-quarter fiscal 2020 on an impressive note. The company witnessed solid revenue growth across each of its operating segments, which is encouraging. Contributions from elevated consumer demand, broader portfolio of products and services as well as several tuck-in acquisitions buoy optimism for the company. Expansion of both margins during the quarter is also encouraging. In addition, increased fiscal 2020 guidance instills investors’ confidence in the stock. However, rising operating expenses is a concern.

Zacks Ranks & Earnings of Other MedTech Majors at a Glance

STERIS carries a Zacks Rank #3 (Hold).

Some better-ranked companies, which posted solid results this earnings season, are Edwards Lifesciences EW, Thermo Fisher Scientific TMO and ResMed RMD, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Edwards Lifesciences delivered third-quarter 2019 adjusted EPS of $1.41, outpacing the Zacks Consensus Estimate by 15.6%. Net sales of $1.09 billion surpassed the Zacks Consensus Estimate by 5.5%.

Thermo Fisher delivered third-quarter 2019 adjusted EPS of $2.94, which surpassed the Zacks Consensus Estimate by 2.1%. Revenues of $6.27 billion outpaced the consensus estimate by 1.3%.

ResMed reported first-quarter fiscal 2020 adjusted EPS of 93 cents, which beat the Zacks Consensus Estimate of 87 cents by 6.9%. Revenues came in at $681.1 million, surpassing the Zacks Consensus Estimate by 3.6%.

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