STERIS (STE) Dips On New Restructuring Plan, Layoff Decision

STERIS plc (NYSE:STE) recently came out with a targeted restructuring plan including the closure of certain manufacturing facilities and a massive layoff. Following the news on Dec 4, shares of the company have slipped 0.93% to close at $119.19 the same day.

The company planned for this restructure due to a reduction in demand for certain products and its overall capacity in the global manufacturing network. Its strategic move includes the disbanding of two manufacturing facilities in Brazil and England. Other actions comprise rationalization of select product offerings and consolidation of manufacturing of others.

The company intends to shift the production of the affected products to existing manufacturing operations by fiscal 2020. The plan also considers an elimination of 200 job positions. Majority of the employees, who might be impacted by this decision, have already been notified about it.

However, the company is optimistic about this targeted restructuring scheme to emerge as a success. An efficient execution of this proposal should lead to an improvement in the company’s quality, delivery and costs.

The plan will incur a restructuring charge of approximately $45 million in fiscal 2019 related to the respective actions undertaken, which will be excluded from the company’s adjusted earnings per share. Profit growth from these actions is projected to be approximately $12 million a year with about half of the benefits occurring in fiscal 2020 and the balance in fiscal 2021.

Notably, with the acquisition of Synergy Health, the U.K.-based outsourced sterilization services provider, STERIS has become the new global leader in infection prevention and sterilization. This consolidation has in turn, boosted STERIS' presence in the international markets as it combined the acquirer’s North American foothold with the acquired entity's solid footprint across Europe. The buyout has also provided STERIS with an opportunity to better serve the emerging markets of Asia-Pacific and Latin America.

However, the shutdown of manufacturing facilities in Brazil and England may dent the global base of STERIS initially. We currently remain on the sidelines to wait and see how this decision can work for STERIS over a longer term.

Price Performance

Year to date, shares of STERIS have outperformed its industry. The stock has surged 36.3% compared with the industry's 14.6% rally.

Zacks Rank & Other Key Picks

STERIS currently carries a Zacks Rank #2 (Buy) Other top-ranked stocks in the broader medical space include Integer Holdings Corporation (NYSE:ITGR) , Surmodics, Inc. (NASDAQ:SRDX) and Veeva Systems (NYSE:VEEV) .

Integer has an expected earnings growth rate of 31.2% for the fourth quarter and a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Surmodics' long-term earnings growth rate is projected at 10%. The stock currently carries a Zacks Rank of 2.

Veeva Systems' long-term earnings growth rate is estimated at 19.3%. The stock is presently a Zacks #2 Ranked player.

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