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STERIS' (STE) Q4 Earnings Surpass Estimates, Margins Rise

Zacks Equity Research

STERIS plc STE reported fourth-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.64, up 7.2% year over year. The metric beat the Zacks Consensus Estimate by 4.5%.

The adjustment excludes the impact of certain non-recurring charges like COVID-19-led incremental costs, amortization of acquired intangible assets, acquisition and integration related charges and amortization of property "step up" to fair value.

The company’s GAAP EPS was $1.44, up 13.4% year over year.

Full-year adjusted EPS was $5.64, reflecting a 15.3% increase from the year-earlier $4.89. The metric topped the Zacks Consensus Estimate by 1.1%.

Revenues in Detail

Revenues of $822.9 million increased 7.1% year over year in the quarter, beating the Zacks Consensus Estimate by 4.4%.

Organic revenue growth at constant currency or CER was 8% year over year in the fiscal fourth quarter, mainly driven by growth across all segments on strong underlying customer demand and solid adoption of new products.

Full-year revenues totaled $3.03 billion, reflecting an 8.9% increase from the year-ago period. Revenues beat the Zacks Consensus Estimate by 1.3%.

Quarter in Detail

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

Revenues at Healthcare Products increased 3% year over year to $397.8 million (3% on a CER organic basis). In the quarter under review, service revenues grew 3% and consumable revenues rose 10%. Meanwhile, capital equipment revenues declined 1%.

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 10% to $148.8 million (11% on a CER organic basis).

Revenues at Applied Sterilization Technologies climbed 14% to $163.7 million (15% at CER organic basis) on increased demand from core medical device customers.

Revenues at the Life Sciences segment rose 9% to $112.7 million (10% at CER organic basis) on 26% growth in consumable revenues along with a 5% rise in service revenues. However, capital equipment revenues declined 9%.

The company approved a quarterly interim dividend of 37 cents per share to shareholders.


Adjusted gross profit (excluding costs and benefits of revenues for restructuring) in the reported quarter was $363.9 million, up 8.5% from the prior-year quarter. Adjusted gross margin expanded 56 basis points (bps) year over year to 44.2% in the reported quarter.

STERIS witnessed a 9.2% year-over-year uptick in selling, general and administrative expenses to $189.1 million. Research and development expenses increased 8.5% to $17.2 million. Adjusted operating expenses of $206.3 million rose 9.1% year over year.

Adjusted operating profit totaled $157.6 million, reflecting a 7.7% rise from the prior-year quarter. Further, adjusted operating margin in the first quarter expanded 10 bps to 19.1%.

Financial Details

STERIS exited the year with cash and cash equivalents of $319.6 million compared with $220.6 million at the end of 2019.

Cumulative cash flow from operating activities at the end of 2020 was $590.6 million compared with $539.5 million at 2019-end.

The company’s free cash flow at the end of fiscal 2020 was $380.2 million compared with $355.4 million at the end of fiscal 2019.

2021 Guidance

STERIS, in the wake of uncertainties arising from the pandemic and its duration and impact on its operations, is not issuing any financial outlook for 2021 at present.

Our Take

STERIS exited the fourth-quarter fiscal 2020 with better-than-expected results. The company witnessed solid revenue growth across each of its operating segments despite the coronavirus pandemic. Contributions from elevated consumer demand and a broader portfolio of products and services encourage. Expansion in both margins during the quarter is also promising. An increase in free cash flow despite increased capital spending instills optimism.

However, a decline in outsourced reprocessing business resulting from a fall in procedures due to COVID-19 is concerning. Healthcare Products, especially endoscopy products, faced the immediate impact of revenue loss due to the pandemic. Fall in nonessential procedures across America also impacted the top line. The company’s decision to not provide any financial guidance for fiscal 2021 is also worrying.

Zacks Rank and Stocks to Consider

STERIS currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are Aphria Inc. APHA, Biogen Inc. BIIB and Eli Lilly and Company LLY.

Aphria reported third-quarter fiscal 2020 adjusted EPS of 2 cents, comparing favorably with the Zacks Consensus Estimate of a loss of 4 cents. Net revenues of $64.4 million outpaced the consensus estimate by 14.6%. The company carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Biogen currently carries a Zacks Rank #2. It reported first-quarter 2020 adjusted EPS of $9.14, surpassing the Zacks Consensus Estimate by 18.1%. Revenues of $3.53 billion outpaced the consensus mark by 3.2%.

Eli Lilly delivered first-quarter 2020 EPS of $1.75, outpacing the Zacks Consensus Estimate by 12.9%. Revenues of $145.3 million surpassed the consensus estimate by 6.3%. The company currently sports a Zacks Rank #1.

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