STERIS (STE) Q4 Earnings & Revenues Beat Estimates, Up Y/Y

STERIS plc (NYSE:STE) reported fourth-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.24, up 11.7% year over year and 1.6% ahead of the Zacks Consensus Estimate. Reported EPS came in at 86 cents, a significant improvement from 31 cents a year ago.

The adjusted EPS figure for the full year was $4.15, up 10.4% from the year-ago period and also above the Zacks Consensus Estimate by a couple of cents.

STERIS generated revenues of $715.9 million in the fiscal fourth quarter, up 5.1% year over year. Moreover, the top line exceeded the Zacks Consensus Estimate of $710 million. Fiscal 2018 revenues came in at $2.61 billion, a marginal 0.3% improvement from the year-ago period. The annual figure is in line with the consensus mark.

Quarter in Detail

Organic revenue growth at constant currency was 5.2% year over year in the fiscal fourth quarter, mainly driven by balanced growth across all segments of the company.

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

Revenues at Healthcare Products increased 2% year over year to $360 million (up 4% on a constant currency organic basis). In the quarter under review, service revenues grew 7%, consumable revenues rose 2% and capital equipment revenues were flat year over year.

Revenues at the Healthcare Specialty Services segment were up 7.1% to $122.1 million (up 5% on a constant currency organic basis). The fourth quarter registered the final impact from the linen business divestitures year over year. Revenues at Applied Sterilization Technologies rose 11% to $133.5 million (up 5%), backed by increased demand from core medical device customers.

Revenues at Life Sciences segment grew 15% to $100.3 million (up 12%) on 9% growth in Service revenues and a 46% rise in capital equipment revenues. Consumable revenues were flat year over year.

Margins

Adjusted gross margin improved 70 basis points (bps) year over year to 42% in the reported quarter. Per STERIS, gross margin expansion was fueled by a favorable product mix and price along with a 60-basis point improvement from divestitures. Currency had an unfavorable impact of 60 basis points on the gross margin.

STERIS witnessed a 21.4% year-over-year decline in selling, general and administrative expenses to $161.6 million. Research and development expenses rose 11.7% to $15.2 million. Accordingly, adjusted operating margin expanded 280 bps on a year-over-year basis to 17.6% in the reported quarter.

Financial Details

STERIS exited the fiscal 2018 with cash and cash equivalents of $201.5 million compared with $282.9 million at the end of fiscal 2017. The company had long-term debt of $1.32 billion at the end of the fiscal fourth quarter compared with $1.48 billion at the end of fourth-quarter fiscal 2017.

For the full year, the company generated $457.6 million in cash flow from operations, up 7.9% from the year-ago period. While free cash flow was $294.3 million compared with $256 million in the prior year.

2019 Guidance

STERIS expects 4-5% of constant currency organic revenue growth in fiscal 2019 from the prior fiscal. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.73 billion.

Adjusted EPS outlook for fiscal 2019 has been projected in the range of $4.63-$4.75. The consensus estimate for fiscal 2019 adjusted EPS lies within the guided range at $4.71.

Our Take

STERIS exited fourth-quarter fiscal 2018 on a promising note with both earnings and revenues beating the respective Zacks Consensus Estimate. 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 has also made certain divestments and organizational changes, which are expected to better align with its operations.

Zacks Rank & Key Picks

STERIS has a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader medical space, having reported solid results this earnings season are, Intuitive Surgical (NASDAQ:ISRG) , Chemed Corporation (NYSE:CHE) and Baxter International Inc. (NYSE:BAX) . While Intuitive Surgical sports a Zacks Rank #1 (Strong Buy), Chemed and Baxter carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Intuitive Surgical reported first-quarter 2018 adjusted EPS of $2.44, which beat the Zacks Consensus Estimate by 22.6%. Revenues totaled $848 million, also surpassing the consensus estimate by 10.6%.

Chemed posted first-quarter 2018 adjusted EPS of $2.72, surpassing the Zacks Consensus Estimate of $2.37. Revenues came in at $439.2 million, outpacing the Zacks Consensus Estimate of $420 million.

Baxter posted first-quarter 2018 adjusted bottom line of 70 cents, which beat the Zacks Consensus Estimate by 12.9%. The top line came in at $2.68 billion, edging past the Zacks Consensus Estimate of $2.62 billion.

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