STERIS (STE) Q2 Earnings & Revenues Beat Estimates, Rise Y/Y

STERIS plc (NYSE:STE) reported second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.10, up 17% year over year. The metric surpassed the Zacks Consensus Estimate of $1.08 by 1.9%. Reported EPS came in at 91 cents, up from the year-ago 75 cents.

STERIS generated revenues of $679 million in the fiscal second quarter, up 7.1% year over year. Revenues also topped the Zacks Consensus Estimate by 3.4%.

Quarter in Detail

Organic revenue growth at constant currency was 9% year over year in the fiscal second 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% year over year to $321.5 million (up 11% on a constant currency organic basis). In the quarter under review, service revenues grew 6% and capital equipment revenues rose 12%. Meanwhile, consumable revenues grew 1% on divestitures limiting growth.

STERIS plc Price, Consensus and EPS Surprise

Revenues at the Healthcare Specialty Services segment were up 7% to $124.6 million (up 7% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 7% to $135.7 million (up 8%) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 9% to $97.2 million (up 9%) on 27% growth in capital equipment revenues along with 2% rise in service and consumable revenues.

Margins

Adjusted gross margin declined 10 basis points (bps) year over year to 41.9% in the reported quarter. Per STERIS, shift of revenue mix toward capital equipment and investments along with outsourced reprocessing in the United States led to the decline in gross margin. However, benefits from favorable currency movement and price along with gains from divestitures had partially offset the decline.

STERIS witnessed a 5.5% year-over-year rise in selling, general and administrative expenses to $162.3 million. Research and development expenses rose 12.9% to $15.8 million. However, adjusted operating margin expanded 20 bps on a year-over-year basis to 15.7% in the reported quarter.

Financial Details

STERIS exited second-quarter fiscal 2019 with cash and cash equivalents of $209.9 million compared with $218.5 million at the end of first-quarter fiscal 2018. The company had long-term debt of $1.27 billion at the end of the second quarter compared with $1.32 billion at the end of first quarter fiscal 2018.

For the first six months of fiscal 2019, the company generated $226.7 million in cash flow from operations, up from $217.4 million in the year-ago period. Further, free cash flow in the same period was $169.7 million compared with $144 million a year ago.

2019 Guidance Revised

Based on the results for the first half of fiscal 2019, STERIS updated its full year projections for constant currency organic revenue growth to 5-6% from 4-5%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.73 billion.

The company also revised the adjusted EPS guidance for fiscal 2019 to the range of $4.74-$4.84 compared with $4.63-$4.75, stated previously. The consensus estimate for fiscal 2019 adjusted EPS lies within the guided range at $4.71.

Our Take

STERIS exited second-quarter fiscal 2019 on a promising note. We are also encouraged by the favorable underlying market trends along with new product and service offerings. Further, growth in free cash flow reserve is indicative of the company’s strong cash balance. The company raising its overall guidance for fiscal 2019 is also indicative of brighter prospects. STERIS has also made certain divestments and organizational changes, which are expected to better align with its operations.

Zacks Rank & Other Key Picks

STERIS has a Zacks Rank #2 (Buy).

Other top-ranked stocks in the broader medical space which reported solid earnings this season are Intuitive Surgical (NASDAQ:ISRG) , Stryker Corporation (NYSE:SYK) and Merit Medical Systems, Inc. (NASDAQ:MMSI) . All the stocks carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Intuitive Surgical reported third-quarter 2018 adjusted EPS of $2.83, which beat the Zacks Consensus Estimate of $2.65. Revenues totaled $920.9 million, also surpassing the consensus estimate of $918.6 million.

Stryker posted third-quarter 2018 adjusted EPS of $1.69, outpacing the Zacks Consensus Estimate of $1.68. Operating margin was 17.8%, up 30 bps.

Merit Medical reported third-quarter 2018 adjusted EPS of 47 cents, which trumped the Zacks Consensus Estimate of 42 cents. Revenues of $221.6 million edged past the consensus estimate of $218 million.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>