STERIS plc isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning everyone and welcome to the STERIS plc Third Quarter 2024 Conference Call. [Operator Instructions] Please also note today's event is being recorded. And at this time, I'd like to turn the floor over to Julie Winter, Investor Relations. Ma'am, please go ahead.
Julie Winter: Thank you, Jamie and good morning, everyone. As usual, speaking on today's call will be Mike Tokich, our Senior Vice President and CFO; and Dan Carestio, our President and CEO. And I do have a few words of caution before we open for comments. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission or rebroadcast of this call without the expressed written consent of STERIS is strictly prohibited. Some of the statements made during this review are or may be considered forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including, without limitation, those risk factors described in STERIS' securities filings.
The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. STERIS' SEC filings are available through the company and on our website. In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, adjusted operating income, constant currency organic revenue growth and free cash flow will be used. Additional information regarding these measures, including definitions, is available in our release as well as reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the Board of Directors in their financial analysis and operational decision-making.
With those cautions, I will hand the call over to Mike.
Mike Tokich: Thank you, Julie and good morning, everyone. It is once again my pleasure to be with you this morning to review the highlights of our third quarter performance. For the quarter, constant currency organic revenue increased 10% driven by volume as well as 270 basis points of price. Gross margin for the quarter increased 50 basis points compared with the prior year to 43.6%. Price more than offset continued material and labor inflation in addition to the negative impact from currency. EBIT margin decreased 80 basis points to 23.1% of revenue compared with the third quarter last year. The anticipated increase in our year-over-year incentive compensation expense, along with the mix shift in operating income from the AST segment to the Healthcare segment impacted EBIT margins.
We anticipate that the mix shift in operating income from AST to Healthcare will continue in the fourth quarter. The adjusted effective tax rate in the quarter was 22.6%. Net income in the quarter was $220.9 million and adjusted earnings were $2.22 per diluted share. Capital expenditures for the first 9 months of fiscal '24 totaled $268.8 million while depreciation and amortization totaled $430.8 million. Debt declined slightly to $3.3 billion in the third quarter. Total debt-to-EBITDA at quarter end was approximately 2.2x gross leverage. Free cash flow for the first 9 months of fiscal 2024 was $457 million compared with $262.8 million for the first 9 months of fiscal 2023. The fiscal 2024 increase was driven by higher earnings and declines in cash used for tax and compensation-related payments as well as a decline in capital expenditures.
A nurse in a hospital room, administering a procedural medical product in an infection prevention setting.
With that, I will turn the call over to Dan for his remarks.
Dan Carestio: Thanks, Mike and good morning, everyone. Thank you for taking the time to join us to hear more about our third quarter performance and our outlook for the rest of the fiscal year. As you heard from Mike, our third quarter continued the momentum we have experienced in our Healthcare segment in the past few quarters and we also saw a nice improvement in Life Sciences. Overall, we are pleased with our performance. We continue to expect that our Healthcare segment will outperform our original expectations for the fiscal year, offsetting macro challenges impacting demand in our other segments. Looking at our segments; healthcare constant currency organic revenue grew 12% in the quarter. Supporting that performance, we had double-digit growth across capital equipment, consumables and service again this quarter.
This is driven primarily by procedure volume rebound in the U.S. as well as price and market share gains. As anticipated, backlog continues to normalize as we are shipping at a faster pace than new orders are coming in. Remember, our goal is to get back to historic production lead times and continue to meet customer demand. Speaking of demand, capital equipment orders in the Healthcare segment grew double digits in the quarter. Turning to AST; constant currency organic revenue grew 4% which was below our expectations. While we have continued to see more normalized volumes in the U.S. for medtech, outside of the U.S. remains softer than anticipated. In addition, bioprocessing volumes continue to contract. Until we have more clarity, we are taking a more conservative approach to our expectations for the fourth quarter.
Life Sciences grew 20% in the quarter on a constant currency organic basis. We had another strong quarter of capital shipments which grew 57% against relatively easy comparisons. Remember, in fiscal 2023, revenue for both capital equipment and consumables was shifted from the third quarter to the fourth quarter due to some supply chain constraints. Consumables grew 8% and service revenue increased 12%. As you're hearing from others in the space, short-term demand remains a bit murky and we continue to be optimistic about the long-term growth opportunities for this segment. Our Dental segment third quarter revenue declined 6% on a constant currency organic basis. Revenue is limited by reduced orders from a large customer due to a temporary disruption of their operations as a result of a cybersecurity incident they experienced during the quarter.
Excluding that disruption, revenue would have been about flat in the quarter which reflects the decline in patient volumes. The lower volume, combined with the continued increases in material costs led to a decline in EBIT margin for the quarter. Turning to our outlook. Fiscal 2024 is shaping up to be another strong year for STERIS, albeit not exactly the way we had anticipated. In the last few years, if they've taught us anything, it's the value of our diversified portfolio. Time and time again, we have benefited as one of our segments outperforms to compensate for challenges elsewhere. We are updating our outlook for the year to increase revenue to reflect the continued outperformance of our Healthcare segment. For the year, we now expect total revenue to grow 10% to 11% on a constant currency organic basis -- I'm sorry and constant currency organic revenue growth of 7% to 8%, each up 100 basis points from our prior ranges.
This assumes low single-digit constant currency organic revenue growth in the fourth quarter caused by the record-setting shipments in last year's fourth quarter. EBIT margins for the fiscal year will decline slightly from fiscal 2023, primarily reflecting the shift in operating income mix from AST to Healthcare. Adjusted earnings per diluted share are now anticipated to be in the range of $8.60 to $8.70 for fiscal 2024. We recognize this outlook includes some conservatism but believe it is warranted until we see the AST customer destocking abate and have additional clarity on bioprocessing volumes. That concludes our prepared remarks for the call. Julie, would you please give the instructions and we can begin the Q&A.
Julie Winter: Thank you, Mike and Dan, for your comments. Jamie, if you can give the instructions, we'll get started on Q&A.
