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STERIS' (STE) Earnings & Revenues Surpass Estimates in Q2

STERIS plc STE reported second-quarter fiscal 2021 adjusted earnings per share (EPS) of $1.48, up 12.1% year over year. The metric beat the Zacks Consensus Estimate by 19.4%.

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 $1.23, up 10.8% year over year.

Revenues in Detail

Revenues of $756.1 million improved 2.6% year over year in the quarter. Further, the metric exceeded the Zacks Consensus Estimate by 7.2%. The year-over-year uptick was led by robust sales in two of the company’s three reporting segments.

Organic revenues at constant currency or CER rose 2% year over year in fiscal second quarter.

Quarter in Detail

The company operates through three segments — Healthcare, Applied Sterilization Technologies and Life Sciences.

Revenues at Healthcare fell 2.9% year over year to $470.9 million (down 3% on a CER organic basis). In the quarter under review, service revenues were flat and consumable revenues increased 6%. Meanwhile, capital equipment revenues fell 14%.

Revenues at Applied Sterilization Technologies improved 10.9% to $169.5 million (up 9% at CER organic basis). CER organic revenues reflected increased demand from medical device customers on a rebound in procedure volumes during the quarter.

Revenues at the Life Sciences segment rose 17.2% to $115.7 million (up 16% at CER organic basis) on 31% growth in consumable revenues, 3% rise in service revenues and 10% improvement in capital equipment revenues.

STERIS plc Price, Consensus and EPS Surprise

 

STERIS plc price-consensus-eps-surprise-chart | STERIS plc Quote

Margins

Gross profit in the reported quarter was $330 million, up 3.3% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 28 basis points (bps) year over year to 43.6% in the reported quarter.

STERIS witnessed a 1.8% year-over-year contraction in selling, general and administrative expenses to $172.7 million. Research and development expenses also dipped 0.7% to $16.1 million. Adjusted operating expenses of $188.9 million fell 1.7% year over year.

Adjusted operating profit totaled $141.2 million, reflecting a 10.8% rise from the prior-year quarter. Further, adjusted operating margin in fiscal second quarter expanded 139 bps to 18.7%.

Financial Details

STERIS exited fiscal second quarter with cash and cash equivalents of $312 million compared with $255.6 million at the end of fiscal first quarter.

Cumulative net cash flow from operating activities at the end of fiscal second quarter was $296 million compared with $260 million a year ago.

The company’s free cash flow at the end of second-quarter fiscal 2021 was $185.6 million compared with $162 million in the year-ago period. Capital expenditure of the company at the end of the reported quarter was $110.7 million, up from $98.2 million in the year-ago period.

The company approved a quarterly interim dividend of 40 cents per share to shareholders.

Guidance

STERIS, due to uncertainties tied to the duration and impact of the pandemic on its operations, is not issuing any financial outlook for fiscal 2021 at the moment.

Our Take

STERIS exited second-quarter fiscal 2021 with better-than-expected results. The company witnessed solid revenue growth across its Life Sciences and Applied Sterilization Technologies segments despite the coronavirus pandemic. Contributions from elevated consumer demand and rebound in procedure volumes, along with strength in segments catering to COVID-19-related products and services, are encouraging. Expansion in both margins during the quarter is also promising. An increase in free cash flow despite increased capital spending instills optimism.

However, a disappointing performance by the company’s Healthcare segment is concerning. The company’s decision to not provide any financial guidance for fiscal 2021 is also worrying.

Zacks Rank and Other Key Picks

STERIS currently carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks in the broader medical space are West Pharmaceutical Services, Inc. WST, Thermo Fisher Scientific Inc. TMO and Align Technology, Inc. ALGN.

West Pharmaceutical reported third-quarter 2020 adjusted EPS of $1.15, beating the Zacks Consensus Estimate by 13.9%. Net revenues of $548 million outpaced the consensus estimate by 7.2%. It currently carries a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Thermo Fisher, a Zacks Rank #1 company, reported third-quarter 2020 adjusted EPS of $5.63, beating the Zacks Consensus Estimate by 28.8%. Revenues of $8.52 billion outpaced the consensus mark by 10%.

Align Technology reported third-quarter 2020 adjusted EPS of $2.25, surpassing the Zacks Consensus Estimate by a stupendous 281.4%. Net revenues of $734.1 million exceeded the Zacks Consensus Estimate by 38%. It currently carries a Zacks Rank #2.

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