STERIS plc STE reported second-quarter fiscal 2025 adjusted earnings per share (EPS) of $2.14, up 15.1% from the year-ago quarter’s figure. The figure surpassed the Zacks Consensus Estimate by 1.4%.
The adjustment excludes the impacts of certain non-recurring charges, such as the amortization of acquired intangible assets and acquisition and integration-related charges, among others.
The company’s GAAP EPS was $1.51, up 25.8% from the year-ago level of $1.20.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Following the earnings announcement, STE stock rose 0.1% at after-market trading yesterday.
STE’s Q2 Revenues in Detail
Revenues of $1.33 billion from continuing operations increased 7.3% year over year. The figure missed the Zacks Consensus Estimate by 0.6%.
Organic revenues at constant exchange rate or CER rose 7% year over year.
STE’s Quarterly Performance in Detail
The company operates through three segments — Healthcare, Applied Sterilization Technologies (“AST”), and Life Sciences.
Revenues at Healthcare rose 9% year over year to $944.2 million (up 7% on a CER organic basis). While there was a 12% improvement in consumable revenues and a 14% increase in service revenues, these were partially offset by a 2% decline in capital equipment revenues. Our model expected Healthcare segment revenues to improve 8.8% in the fiscal second quarter.
Revenues at AST improved 9% to $256.7 million (up 9% on a CER organic basis). This performance reflected 6% growth in service revenues and a significant increase in capital equipment revenues. Our model anticipated a 5.4% improvement in the segment’s revenues in the reported quarter.
Revenues in the Life Sciences segment decreased 4% to $127.9 million (up 3% year over year on a CER organic basis). The decline in revenues was due to the divestiture of the CECS business. This performance reflected 21% growth in consumable revenues, offset by a 35% decline in capital equipment revenues and a 14% drop in service revenues. Our model projected a year-over-year improvement of 3.9% for the segment’s revenues.
Margins
The gross profit in the reported quarter was $578.8 million, up 6.0% from the prior-year level. The gross margin contracted 56 basis points (bps) year over year to 43.6% due to an 8.4% increase in the cost of revenues.
STERIS witnessed a 0.3% year-over-year rise in selling, general and administrative expenses. The figure amounted to $329.3 million. Research and development expenses rose 2.9% to $27.0 million. Adjusted operating expenses of $356.3 million increased 0.5% year over year. The adjusted operating margin expanded 127 bps to 16.7%.
Financial Details
STERIS exited the second quarter of fiscal 2025 with cash and cash equivalents of $172.2 million compared with $198.3 million at the end of the fiscal first quarter.
Cumulative net cash flow from operating activities at the end of the fiscal second quarter was $554.5 million compared with $427.2 million in the year-ago period. Further, the company has a five-year annualized dividend growth rate of 8.44%.
Guidance
STERIS reiterated its fiscal 2025 projection.
The company expects revenues to increase 6.5-7.5%. Constant currency organic revenues are expected to increase 6-7% (earlier 5-7%).
The Zacks Consensus Estimate for fiscal 2025 revenues is pegged at $5.48 billion, implying 0.6% growth from fiscal 2024.
Adjusted EPS is expected to be in the range of $9.05-$9.25. The Zacks Consensus Estimate for the metric is pegged at $9.02.
Our Take
STERIS exited the second quarter of fiscal 2025 with mixed results, wherein earnings beat estimates but revenues missed the same. The Healthcare segment’s ongoing momentum can be attributed to solid procedure volume rebound in the United States, along with favorable pricing and market share gains.
Further, within the AST segment, the company continued to experience normalized volumes in the United States for MedTech. However, outside the United States, the market remains softer than anticipated. Meanwhile, performance in Life Sciences was dented due to the divestiture of the CECS business.
The contraction of both margins doesn’t bode well for the stock.
STE’s Zacks Rank & Key Picks
STE currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks from the broader medical space are Phibro Animal Health PAHC, Quest Diagnostics DGX and HealthEquity HQY.
Phibro Animal Health reported fourth-quarter fiscal 2024 adjusted earnings of 41 cents per share, which topped the Zacks Consensus Estimate by 20.6%. Revenues of $273.2 million beat the Zacks Consensus Estimate by 4.1%. PAHC sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
PAHC’s fiscal 2025 earnings are expected to surge 31.9% compared with the industry’s 11.6% growth. The company’s earnings surpassed estimates in three of the trailing four quarters and missed the same in one, the average surprise being 4.1%.
Quest Diagnostics reported third-quarter 2024 adjusted earnings of $2.30 per share, which topped the Zacks Consensus Estimate by 1.8%. Revenues of $2.49 billion beat the consensus mark by 3.4%.
DGX carries a Zacks Rank #2 (Buy) at present. DGX’s 2024 earnings are expected to surge 2.1% year over year. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 3.3%.
HealthEquity, carrying a Zacks Rank #2 at present, reported a second-quarter fiscal 2025 adjusted earnings of 86 cents per share, which surpassed the Zacks Consensus Estimate by 22.9%. Revenues of $299.9 million topped the Zacks Consensus Estimate by 5.4%.
HQY has an estimated long-term earnings growth rate of 28.2% compared with the industry’s 13.4%. The company’s earnings surpassed estimates in each of the trailing four quarters, the average surprise being 19.8%.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
