STERIS (STE) Q3 Earnings Miss Estimates, Margins Down Y/Y
STERIS plc STE reported third-quarter fiscal 2023 adjusted earnings per share (EPS) of $2.02, down 4.7% from the year-ago quarter’s figure. The metric also missed the Zacks Consensus Estimate by 4.4%.
The adjustment excludes the impacts of certain non-recurring charges like the amortization of acquired intangible assets, acquisition and integration-related charges, and the amortization of inventory and property step up to fair value, among others.
The company’s GAAP EPS was $1.24, down 12.7% from the year-ago quarter’s earnings of $1.42
Revenues in Detail
Revenues of $1.22 billion, up 0.6% year over year in the quarter. However, the metric missed the Zacks Consensus Estimate by 9%.
Organic revenues at constant exchange rate or CER rose 7% year over year in the fiscal third quarter.
Quarter in Detail
The company operates through four segments — Healthcare, Applied Sterilization Technologies (AST), Life Sciences and Dental.
Revenues at Healthcare rose 1% year over year to $769.1 million (up 10% on a CER organic basis). This performance reflected a 5% improvement in capital equipment revenues and a 5% increase in service revenues, which were offset by a 5% decline in consumable revenue.
Revenues at AST improved 3% to $222 million (up 7% on a CER organic basis). Revenue growth was driven by increased demand from medical device customers.
STERIS plc Price and EPS Surprise
STERIS plc price-eps-surprise | STERIS plc Quote
Revenues in the Life Sciences segment dropped 5% to $121.3 million (down 1% year over year on a CER organic basis). Service revenues rose 2%, which was offset by a 6% decrease in capital equipment revenues and a 9% decline in consumable revenues.
The Dental segment reported revenues of $103.6 million, down 2% year over year (up 1% on a CER organic basis). The decline was primarily due to the reduction in volume, decreased manufacturing productivity and increased supply chain and inflationary costs.
Margins
Gross profit in the reported quarter was $521.5 million, down 3.1% from the prior-year quarter’s gross profit. Gross margin contracted 162 basis points (bps) year over year to 42.9% in the reported quarter.
STERIS witnessed a 1.7% year-over-year drop in selling, general and administrative expenses to $305 million. Research and development expenses rose 2.8% to $25.5 million. Adjusted operating expenses of $320.7 million declined 1.4% year over year. The adjusted operating margin contracted 107 bps to 15.7%.
Financial Details
STERIS exited the third quarter of fiscal 2023 with cash and cash equivalents of $259.4 million compared with $348.3 million at the end of the fiscal second quarter.
Cumulative net cash flow from operating activities at the end of fiscal Q3 was $541.1 million compared with $513.1 million a year ago.
Further, the company has a five-year annualized dividend growth rate of 8.62%.
Guidance
Based on foreign currency forward rates through Mar 31, 2023, STERIS now anticipates additional currency headwinds. The total FX impact on revenues is now expected to be approximately $110 million, suggesting a decline from the prior expectation of $150 million. STERIS accordingly has updated its financial guidance for fiscal 2023.
Reported revenues are expected to increase approximately 6% from the earlier expectation of 8% growth. Constant currency organic revenue is now anticipated to grow nearly 7% compared with prior expectations of 10%.
The Zacks Consensus Estimate for revenues is pegged at $4.94 billion.
The adjusted earnings per share guidance was reiterated in the range of $8.00-$8.10. The Zacks Consensus Estimate for the metric is pegged at $8.44.
Our Take
STERIS exited third-quarter fiscal 2023 with earnings and revenues miss. During the quarter, the company faced significant foreign-exchange headwinds, apart from supply chain and inflation-related challenges. The lowered reported revenue growth guidance for fiscal 2023 indicates the continuation of this gloomy trend.
Barring AST and Healthcare, the poor reported revenue performance across two of STERIS’ operating segments is a major concern. However, organic revenue growth was seen in one major 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 Neogen Corporation NEOG, McKesson Corporation MCK and Hologic, Inc. HOLX.
Neogen, carrying a Zacks Rank #2, reported second-quarter fiscal 2023 adjusted EPS of 15 cents, beating the Zacks Consensus Estimate of a loss of 8 cents per share. Revenues of $230 million outpaced the consensus mark by 0.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Neogen has an earnings yield of 2.5% compared with the industry’s 0.2%. NEOG’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, the average being 70.11%.
McKesson, having a Zacks Rank #2, reported third-quarter 2023 adjusted EPS of $6.90, which beat the Zacks Consensus Estimate by 8.8%. Revenues of $70.49 billion outpaced the consensus mark by 0.02%.
McKesson has a long-term estimated growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in two, the average being 4.79%.
Hologic reported first-quarter 2023 adjusted earnings of $1.07 per share, beating the Zacks Consensus Estimate by 18.9%. Revenues of $1.07 billion surpassed the Zacks Consensus Estimate by 9.5%. It currently sports a Zacks Rank #1.
Hologic has a long-term estimated growth rate of 15.2%. HOLX’s earnings surpassed estimates in the trailing four quarters, the average surprise being 46.08%.
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STERIS plc (STE) : Free Stock Analysis Report
