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STERIS (STE) Q3 Earnings In Line, Revenues Beat Estimates

Zacks Equity Research

STERIS plc STE reported third-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.26, up 12.5% year over year. The metric is in line with the Zacks Consensus Estimate. Reported EPS came in at 56 cents, down from the year-ago $1.11.

Revenues of $696.2 million in the fiscal third quarter rose 5.2% year over year. Revenues also topped the Zacks Consensus Estimate by 1.2%.

Quarter in Detail

Organic revenue growth at constant currency was 7% year over year in the fiscal third 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.

STERIS plc Price, Consensus and EPS Surprise

 

STERIS plc Price, Consensus and EPS Surprise | STERIS plc Quote

 

Revenues at Healthcare Products increased 4% year over year to $338.3 million (up 7% on a constant currency organic basis). In the quarter under review, service revenues grew 4% and capital equipment revenues rose 7%. Meanwhile, consumable revenues grew 1% on divestitures limiting growth.

Revenues at the Healthcare Specialty Services segment were up 9% to $127.8 million (up 10% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 6% to $136.8 million (up 8%) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 3% to $93.5 million (up 4%) on 9% growth in consumable revenues along with a 5% rise in service revenues. However, capital equipment revenues declined 8% year over year.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 50 basis points (bps) year over year to 42.5% in the reported quarter.

STERIS witnessed a 10.3% year-over-year rise in selling, general and administrative expenses to $176.1 million. Research and development expenses declined 0.2% to $15.2 million. However, adjusted operating margin contracted 190 bps on a year-over-year basis to 13.7% in the reported quarter.

Financial Details

STERIS exited third-quarter fiscal 2019 with cash and cash equivalents of $224.9 million compared with $209.9 million at the end of second-quarter fiscal 2019. The company had long-term debt of $1.25 billion at the end of the third quarter compared with $1.27 billion at the end of second quarter fiscal 2019.

For the first nine months of fiscal 2019, the company generated $360.6 million in cash flow from operations, up from $327.9 million in the year-ago period. Further, free cash flow in the same period was $252.9 million compared with $216.4 million a year ago.

2019 Guidance

Based on the results for the first nine months of fiscal 2019, STERIS updated its full-year projections for constant currency organic revenue growth to around 6% from 5-6%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.75 billion.

The company continues to expect the adjusted EPS guidance for fiscal 2019 in the range of $4.74-$4.84. The consensus estimate for fiscal 2019 adjusted EPS lies at $4.78.

Our Take

STERIS exited third-quarter fiscal 2019 on a mixed note. We are encouraged by the favorable underlying market trends along with new product and service offerings. Further, growth in free cash flow reserve is indicative of the company’s strong cash balance. The company raising its constant currency organic revenue growth expectations for fiscal 2019 is indicative of brighter prospects. During the reported quarter, STERIS announced a restructuring plan that involved shutting down of two manufacturing units along with product rationalization. STERIS has also made certain divestments and organizational changes, which are expected to better align with its operations.

Zacks Rank & Other Key Picks

STERIS has a Zacks Rank #2 (Buy).

Other top-ranked medical stocks that have recently reported quarterly results are Abbott Laboratories ABT, AngioDynamics Inc. ANGO and CONMED, Corp. CNMD.

Abbott reported fourth-quarter 2018 adjusted EPS of 81 cents, in line with the Zacks Consensus Estimate. Revenues of $7.77 billion were below the Zacks Consensus Estimate of $7.79 billion. The stock has a Zacks Rank #2.

AngioDynamics’ fiscal second-quarter adjusted EPS of 22 cents exceeded the Zacks Consensus Estimate by a penny. Revenues totaled $91.5 million, beating the consensus estimate by 2.9%. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

CONMED delivered fourth-quarter adjusted EPS of 73 cents, in line with the Zacks Consensus Estimate. Revenues of $242.4 million beat the Zacks Consensus Estimate of $229.2 million. The stock carries a Zacks Rank of 2.

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