STERIS plc STE reported third-quarter fiscal 2024 adjusted earnings per share (EPS) of $2.22, up 9.9% from the year-ago quarter’s figure. The metric surpassed the Zacks Consensus Estimate by 2.8%.
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 $1.42, an increase of 14.5% from the year-ago period.
Revenues in Detail
Revenues of $1.40 billion increased 14.8% year over year in the third quarter. The metric beat the Zacks Consensus Estimate by 4.2%.
Organic revenues at the constant exchange rate or CER rose 10% year over year in the fiscal third quarter.
The company operates through four segments — Healthcare, Applied Sterilization Technologies (“AST”), Life Sciences and Dental.
Revenues at Healthcare rose 19.1% year over year to $916.2 million (up 12% on a CER organic basis). This performance reflected a 17% improvement in capital equipment revenues, a 13% increase in service revenues and a 27% rise in consumable revenues. Going by our model, revenues for the Healthcare segment were expected to improve 8.8% in the fiscal third quarter.
Revenues at AST improved 5.8% to $234.9 million (up 4% on a CER organic basis). However, underlying service growth continues to be impacted by Medtech Customer inventory management and the continued reduction in demand from bioprocessing customers. Our model anticipated an 11.4% improvement in the segment’s revenues in the third quarter.
Revenues in the Life Sciences segment increased 20.9% to $146.6 million (up 20% year over year on a CER organic basis). This performance reflected a 57% increase in capital equipment revenues and an 8% increase in consumable revenues, while service revenues were up by 12% compared to last year’s same period. Our model’s projection was a year-over-year improvement of 16.3% in the segment’s revenues.
The Dental segment reported revenues of $97.9 million, down 5.4% year over year (down 6% on a CER organic basis). Our model projected revenues to improve 6.3% compared to last year’s comparable period.
Margins
The gross profit in the reported quarter was $602.6 million, up 15.6% from the prior-year quarter. The gross margin expanded 29 basis points (bps) year over year to 43.2% despite a 14.2% rise in the cost of revenues.
STERIS witnessed an 18.2% year-over-year rise in selling, general and administrative expenses to $360.5 million. Research and development expenses rose 1.6% to $25.9 million. Adjusted operating expenses of $386.4 million increased 16.9% year over year. The adjusted operating margin contracted 21 bps to 15.5%.
Financial Details
STERIS exited the third quarter of fiscal 2024 with cash and cash equivalents of $195.6 million compared with $213.8 million at the end of the fiscal second quarter of 2024.
Cumulative net cash flow from operating activities at the end of the fiscal third quarter was $718.5 million, sequentially up from $427.2 million in the fiscal second quarter. Further, the company has a five-year annualized dividend growth rate of 8.76%.
Guidance
STERIS provided an updated fiscal 2024 guidance.
The company expects fiscal 2024 revenues to increase 10%-11% (previously 9-10%). Organic revenue expectation at CER stands at 7%-8% (earlier 6%-7%).
The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.44 billion, implying 9.6% growth from fiscal 2023.
Adjusted EPS for fiscal 2024 is now expected in the range of $8.60-$8.70 (previously $8.60-$8.80). The Zacks Consensus Estimate for the metric is pegged at $8.66.
Our Take
STERIS exited the fiscal third quarter of 2024 with better-than-expected earnings and revenues. The ongoing momentum of the Healthcare segment reflected solid procedure volume growth in the United States, while the easing of supply chain constraints helped the company reduce backlog levels. The revised revenue outlook for fiscal 2024 appears encouraging.
The addition of the surgical instrumentation assets purchased from BD was a positive factor in the strong growth of Healthcare operating income. Further, the Life Sciences segment reflected an improvement in volume and price in the quarter under review. The expansion of the gross margin bodes well for the stock.
Meanwhile, performance in AST continues to be impacted by the inventory destocking in the Medtech space and the market decline of the bioprocessing customer demand. The escalation of expenses during the quarter is concerning.
Zacks Rank & Key Picks
STERIS currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Stryker Corporation SYK, Boston Scientific BSX and Cardinal Health CAH.
Stryker, carrying a Zacks Rank #2 (Buy), reported a fourth-quarter 2023 adjusted EPS of $3.46, beating the Zacks Consensus Estimate by 5.8%. Revenues of $5.8 billion outpaced the consensus estimate by 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stryker has an estimated earnings growth rate of 11.5% for 2025 compared with the S&P 500’s 9.9%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 5.1%.
Boston Scientific, carrying a Zacks Rank #2, reported a fourth-quarter 2024 adjusted EPS of 55 cents, which beat the Zacks Consensus Estimate by 7.8%. Revenues of $3.73 billion outpaced the Zacks Consensus Estimate by 3.8%.
BSX has a long-term estimated earnings growth rate of 12.7%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average being 7.4%.
Cardinal Health reported second-quarter fiscal 2024 adjusted earnings of $1.82, which beat the Zacks Consensus Estimate by 16.7%. Revenues of $57.45 billion improved 11.6% on a year-over-year basis and also topped the Zacks Consensus Estimate by 1.1%.
CAH has a long-term estimated earnings growth rate of 15.3% compared with the industry’s 11.8% growth. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 15.6%.
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