Steris (STE) up 1.5% since last earnings report: can it continue?

IIt’s been about a month since the last earnings report from Steris (STE). Stocks rose about 1.5% during this period, underperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or is Steris set for a pullback? Before we dive into the reaction of investors and analysts lately, let’s take a look at the latest earnings report to better understand the important factors.

STERIS Q4 Earnings Beat Estimates, Gross Margin Rises

STERIS reported adjusted earnings per share of $2.04 for the fourth quarter of fiscal 2022, up 25.2% from the prior year figure. The metric exceeded the Zacks consensus estimate by 2%.

The adjustment excludes the impacts of certain non-recurring charges such as the amortization of acquired intangible assets, acquisition and integration charges, and the amortization of inventories and buildings marked to fair value.

The company’s GAAP earnings per share were 52 cents, down 49% from EPS of $1.02 a year ago.

For the full year, adjusted earnings were $7.92 per share, up 28.4% from the same period last year. It also beat Zacks’ consensus estimate by 0.3%.

Income in detail

Revenue of $1.21 billion was up 38.6% year over year in the quarter. The measure beat the Zacks consensus estimate by 2.6%. The year-over-year rise was led by robust sales in three of the company’s reporting segments.

Organic revenue at constant currency, or CER, increased 11% year over year in the fourth fiscal quarter.

Full-year revenue was $4.59 billion, an increase of 47.5% over the same period last year. Revenue beat the Zacks consensus estimate by 0.9%.

Quarter in detail

The Company operates through four segments – Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.

Healthcare revenue increased 32% year-over-year to $738.8 million (up 7% organically CER) driven by a 63% increase in consumables revenue, a 21% increase in service revenue and a 17% improvement in capital goods revenue.

Applied Sterilization Technologies revenue increased 19% to $222.9 million (up 22% on an organic CER basis). CER’s organic revenue growth was driven by increased demand from medical device and biopharmaceutical customers.

Life Sciences segment revenue increased 15% to $143.3 million (up 12% organically CER) driven by 18% growth in consumables revenue, a 13% increase in revenue capital goods and a 14% increase in service revenues.

The dental segment reported revenue of $105.7 million.

Margins

Gross profit for the quarter reported was $571.6 million, up 50.5% from adjusted gross profit for the prior year quarter (excluding restructuring revenue costs and benefits). Gross margin increased 373 basis points year over year to 47.2% in the current quarter.

STERIS recorded a 105.2% year-over-year increase in selling, general and administrative expenses to $453.6 million. Research and development spending increased 49% to $26.1 million. Adjusted operating expenses of $479.7 million increased 101.1% year over year.

As a result, adjusted operating profit totaled $91.9 million, reflecting a 34.9% decline from the prior year quarter. The adjusted operating margin contracted by 858 basis points to 7.6%.

Financial details

STERIS ended 2022 with cash and cash equivalents of $348.3 million compared to $220.5 million at the end of fiscal 2021.

Cumulative net cash flow from operating activities at the end of fiscal 2022 was $684.8 million, compared to $689.6 million a year ago.

The company’s free cash flow at the end of the fiscal fourth quarter was $399 million, compared to $450.9 million in the same period last year.

Additionally, the company has a five-year annualized dividend growth rate of 9.12%.

Tips

STERIS has communicated its financial guidance for fiscal year 2023.

The company expects organic revenue growth of 11% at constant currency. Zacks’ consensus estimate for revenue is pegged at $4.89 billion.

Adjusted earnings per diluted share should be between $8.55 and $8.75. The Zacks consensus estimate for the metric is pegged at $8.79.

How have the estimates changed since then?

Analysts have been silent for the past two months, with none issuing revised earnings estimates.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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