STERIS (STE) Q1 Earnings Surpass Estimates, Margins Rise

STERIS plc (NYSE:STE) reported first-quarter fiscal 2020 adjusted earnings per share (EPS) of $1.23, up 23% year over year. The metric beat the Zacks Consensus Estimate by 10.8%.

Reported EPS came in at 99 cents, up 20.7% year over year.

Revenues of $696.8 million in the quarter rose 9.1% year over year and topped the Zacks Consensus Estimate by 3.4%.

Quarter in Detail

Organic revenue growth at constant currency was 10% year over year in the first quarter, mainly driven by growth across all segments.

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

Revenues at Healthcare Products increased 6.1% year over year to $309.8 million (up 6.7% on a constant currency organic basis). In the quarter under review, service revenues grew 2% and capital equipment revenues rose 7%. Meanwhile, consumable revenues grew 8% on divestitures limiting growth.

Revenues at the Healthcare Specialty Services segment were up 11.2% to $135.9 million (up 13.2% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 10.6% to $154.3 million (up 13.1% at CER organic basis) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 13.9% to $96.8 million (up 15.3% at CER organic basis) on 9% growth in consumable revenues along with a 1% rise in service revenues and 40% year-over-year growth in capital equipment revenues.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 177 basis points (bps) year over year to 43.9% in the reported quarter.

STERIS witnessed a 12.9% year-over-year rise in selling, general and administrative expenses to $178.8 million. Research and development expenses declined 3.9% to $15.6 million. Overall, adjusted operating margin expanded 122 bps on a year-over-year basis to 15.9% in the reported quarter.

Financial Details

STERIS exited first quarter of fiscal 2020 with cash and cash equivalents of $238.1 million compared with $220.6 million at the end of fiscal 2019. The company had long-term debt of $1.21 billion at the end of the first quarter compared with $1.18 billion at the end of fiscal 2019.

Year to date, net cash provided by operations was $109.3 million, compared with $100.8 million at the end of the year-ago period.

2020 Guidance

STERIS has updated its projections for fiscal 2020 constant currency organic revenue growth at around 6-7% compared with the previous projection of 5-6%. The Zacks Consensus Estimate for fiscal 2020 revenues is pegged at $2.94 billion.

The company has also raised its projection for fiscal 2020 adjusted EPS in the range of $5.38-5.53 from the earlier-estimated $5.28-5.43. The Zacks Consensus Estimate for fiscal 2020 adjusted EPS lies at $5.37, below the guided range.

Our Take

STERIS exited first-quarter fiscal 2020 on a strong note. We are encouraged to note that the company witnessed solid revenue growth across each of its operating segments. The company’s raised guidance for fiscal 2020 is indicative of brighter prospects. Contributions from elevated consumer demand, broader portfolio of products and services as well as additional volume and enhanced productivity buoy optimism for the company.

Zacks Rank & Key Picks

STERIS currently carries a Zacks Rank #3 (Hold).

A few better-ranked companies, which posted solid results this earnings season, are Stryker Corporation (NYSE:SYK) , Baxter International Inc. (NYSE:BAX) and Intuitive Surgical, Inc. (NASDAQ:ISRG) .

Baxter delivered second-quarter 2019 adjusted EPS of 89 cents, which surpassed the Zacks Consensus Estimate of 81 cents by 9.9%. Revenues of $2.84 billion beat the Zacks Consensus Estimate of $2.79 billion by 1.9%. The company holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stryker delivered second-quarter 2019 adjusted EPS of $1.98, beating the Zacks Consensus Estimate by 2.6%. Revenues of $3.65 billion surpassed the Zacks Consensus Estimate by 1.4%. The company carries a Zacks Rank of 2.

Intuitive Surgical reported second-quarter 2019 adjusted EPS of $3.25, which beat the Zacks Consensus Estimate of $2.85. Revenues were $1.1 billion, surpassing the Zacks Consensus Estimate of $1.03 billion. The company sports a Zacks Rank #2.

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