STERIS (STE) Tops Q4 Earnings & Revenues, Issues '18 View

STERIS Plc (NYSE:STE) reported fourth-quarter fiscal 2017 adjusted earnings per share (EPS) of $1.11, up 23.3% from the year-ago quarter. The adjusted EPS figure also surpassed the Zacks Consensus Estimate of $1.07.

For the full year, the adjusted EPS was $3.76, up 10.9%. It also outpaced the Zacks Consensus Estimate of $3.73.

Revenues in Details

STERIS generated revenues of $681.2 million, down 1.3% year over year. The top line, however, surpassed the Zacks Consensus Estimate of $666 million. The year-over-year decline was a result of foreign currency fluctuations and divested businesses. Organic revenue growth at constant currency was 7% year over year, primarily driven by higher volumes and rising prices.

For full-year 2017, revenues increased 17% year over year to $2.61 billion, or 5% on a constant currency basis.

The company operates through four segments: Healthcare Products, Healthcare Specialty Services, Applied Sterilization Technologies and Life Sciences.

Revenues from the Healthcare Products segment climbed 5% year over year to $351.4 million in the reported quarter. Organic revenues were up 7% mainly owing to 12% growth in capital equipment and 4% rise in service revenues. This was partially offset by a 4% drop in consumable revenues due to divestitures.

Revenues from the Healthcare Specialty Services segment declined 21% to $126.0 million on a reported basis due to divestitures. However, organic revenues grew 8% reflecting growth at IMS and the legacy Synergy CSD outsourcing business in Europe.

On the other hand, revenues from Applied Sterilization Technologies improved 4.8% to $115.7 million and organic revenue growth was 7%. This was driven by strong underlying demand from core medical device customers.

Lastly, revenues from the Life Sciences segment increased 1% to $86.3 million in the quarter, as 5% growth in consumable revenues was offset by a 2% decrease in capital equipment revenues and 1% drop in service revenues. On an organic basis, revenues increased 2% year over year.

Margins

Adjusted gross margin improved 289 basis points (bps) year over year to 41.1% in the reported quarter. The expansion in gross margin was on account of the positive impact of divested businesses, favorable foreign currency, cost synergies and pricing, partially offset by unfavorable product mix.

STERIS witnessed a 37.1% year-over-year increase in selling, general and administrative expenses to $205.7 million. Also, research and development expenses rose 10.1% to $15.8 million. Adjusted operating margin contracted 581 bps on a year-over-year basis to 8.6% in the reported quarter.

Financial Details

STERIS exited fiscal 2017 with cash and cash equivalents of $282.9 million, compared with $248.8 million at the end of fiscal 2016. The company had long-term debt of $1.48 billion at the end of fiscal 2017, compared with $1.55 billion at the end of fiscal 2016. The company generated $424.1 million in cash flow from operations in fiscal 2017, up 66.5% from fiscal 2016.

2018 Guidance

STERIS expects revenues to decline 2%–3% in fiscal 2018 from the prior fiscal. This is because of the impact of divested businesses and foreign currency movements.

The company also projects fiscal 2018 adjusted EPS in the band of $3.96–$4.09.

Our Take

STERIS ended fourth-quarter fiscal 2017 on a positive note, with earnings and revenues beating the Zacks Consensus Estimate. However, the year-over-year decline is a disappointment. Also, the company’s revenue guidance for fiscal 2018 is discouraging.

On a positive note, organic growth performance was strong across most of the segments. Further, growth in free cash flow reserve is indicative of the strong cash balance the company has.

Zacks Rank & Key Picks

STERIS currently has a Zacks Rank #4 (Sell).Better-ranked medical stocks include Baxter International Inc. (NYSE:BAX) , Hologic Inc. (NASDAQ:HOLX) and Bio-Rad Laboratories, Inc. (NYSE:BIO) . Baxter International sports a Zacks Rank 1 (Strong Buy), while Hologic and Bio-Rad Laboratories carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Baxter International gained around 21.0% in the last one year, in comparison to the S&P 500’s 16.1%. It has a four-quarter average earnings surprise of 17.14%.

Hologic gained 33.4% in the last one year, in comparison to the S&P 500’s. The company has a stellar four-quarter average earnings surprise of over 4.16%.

Bio-Rad Laboratories gained 57.2% in the past one year, better than the S&P 500 mark. It has a four-quarter average earnings surprise of 13.10%.

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