STERIS (STE) Q2 Revenues Surpass Estimates, Margins Down
STERIS plc STE reported second-quarter fiscal 2024 adjusted earnings per share (EPS) of $2.03, up 2% from the year-ago quarter’s figure. However, the metric missed the Zacks Consensus Estimate by 1%.
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 $1.16 compared to the loss of $3.15 per share in the year-ago quarter.
Revenues in Detail
Revenues of $1.34 billion increased 11.8% year over year in the second quarter. The metric beat the Zacks Consensus Estimate by 4.1%.
Organic revenues at the constant exchange rate or CER rose 8% year over year in the fiscal second 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 18.7% year over year to $870.1 million (up 14% on a CER organic basis). This performance reflected a 20% improvement in capital equipment revenues, a 13% increase in service revenues and a 24% rise in consumable revenues. Going by our model, the projected revenues for the Healthcare segment in the fiscal second quarter was $797.7 million.
Revenues at AST improved 1.2% to $235.1 million (down 1% on a CER organic basis). Underlying service growth continues to be impacted by Medtech Customer inventory management and the reduction in demand from bioprocessing Customers. Our model estimated revenues for this business to be $239.4 million in the second quarter.
Revenues in the Life Sciences segment increased 5.8% to $133.1 million (up 5% year over year on a CER organic basis). This performance reflected an 18% increase in capital equipment revenues and a 3% increase in consumable revenues, while service revenues were flat compared with the second quarter last year. Our model’s projection was $138.7 million.
The Dental segment reported revenues of $104.2 million, down 4.9% year over year (down 6% on a CER organic basis). The reported figure also missed our model’s projected revenues of $107.9 million.
Margins
The gross profit in the reported quarter was $593.5 million, up 11.5% from the prior-year quarter. However, the gross margin contracted 13 basis points (bps) year over year to 44.2% on a 12.1% rise in the cost of revenues.
STERIS witnessed a 17.8% year-over-year rise in selling, general and administrative expenses to $380.7 million. Research and development expenses rose 8.5% to $27 million. Adjusted operating expenses of $407.7 million rose 17% year over year. The adjusted operating margin contracted 150 bps to 13.8%.
Financial Details
STERIS exited the second quarter of fiscal 2024 with cash and cash equivalents of $213.8 million compared with $208.6 million at the end of the fiscal first quarter of 2024.
Cumulative net cash flow from operating activities at the end of the fiscal second quarter was $427.2 million compared with $335.6 million at the end of the prior year’s comparable period. Further, the company has a five-year annualized dividend growth rate of 8.51%.
Guidance
STERIS reaffirmed its fiscal 2024 guidance, which was originally provided on the fiscal first-quarter earnings call.
STERIS expects fiscal 2024 revenues to increase 9-10% from fiscal 2023 (unchanged). Organic revenue expectation at CER also remains unchanged at 6-7%. The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.42 billion, implying 9.3% growth from fiscal 2023.
Adjusted earnings per share for fiscal 2024 are now expected in the range of $8.60-$8.80 (same as earlier). The Zacks Consensus Estimate for the metric is pegged at $8.73.
Our Take
STERIS exited the fiscal second quarter of 2024 with earnings missing and revenues beating estimates. The bottom line was up year over year. The ongoing momentum in the Healthcare segment is encouraging, with the chances of outperforming the company’s original expectations for the current fiscal year. Moreover, the integration of the surgical instrumentation business purchased from BD during the quarter continues to progress as planned.
Meanwhile, escalating expenses do not bode well for the stock. Both margins resulted in a contraction in the quarter, raising our concern.
Zacks Rank & Key Picks
STERIS currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the broader medical space that have announced quarterly results are DexCom DXCM, Medpace MEDP and The Ensign Group ENSG.
DexCom, carrying a Zacks Rank of 2 (Buy), reported a third-quarter 2023 adjusted EPS of 50 cents, beating the Zacks Consensus Estimate by 47.1%. Revenues of $975 million outpaced the consensus mark by 4%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
DexCom has a long-term estimated growth rate of 33.6%. DXCM’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 36.4%.
Medpace reported a third-quarter 2023 adjusted EPS of $2.22, beating the Zacks Consensus Estimate by 8.8%. Revenues of $492.5 million surpassed the Zacks Consensus Estimate by 3.4%. It currently carries a Zacks Rank #2.
Medpace has an estimated earnings growth rate of 16.2% for the next year. MEDP’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 14.6%.
The Ensign Group reported a third-quarter 2023 adjusted EPS of $1.20, beating the Zacks Consensus Estimate by 1.7%. Revenues of $940.8 million surpassed the Zacks Consensus Estimate by 0.2%. It currently carries a Zacks Rank #2.
The Ensign Group has a long-term estimated growth rate of 15%. ENSG’s earnings surpassed estimates in all the trailing four quarters, the average surprise being 1.5%.
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