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Steris (STE) Up 0.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Steris (STE - Free Report) . Shares have added about 0.5% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steris due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

STERIS’ Earnings & Revenues Surpass Estimates in Q1

STERIS reported first-quarter fiscal 2021 adjusted earnings per share of $1.31, up 6.5% year over year. The metric beat the Zacks Consensus Estimate by 35.1%.

The adjustment excludes the impact of certain non-recurring charges like COVID-19-led incremental costs, amortization of acquired intangible assets, acquisition and integration related charges and amortization of property "step up" to fair value.

The company’s GAAP earnings per share was $1.03, up 4% year over year.

Revenues in Detail

Revenues of $668.9 million declined 3.9% year over year in the quarter. However, the metric exceeded the Zacks Consensus Estimate by 4.5%. The year-over-year drop was led by decline in sales in two of the company’s three reporting segments.

Organic revenues at constant currency or CER fell 3.4% year over year in the fiscal first quarter.

Quarter in Detail

The company operates through three segments — Healthcare, Applied Sterilization Technologies and Life Sciences. For investors’ note, the earlier-reported Healthcare Products and Healthcare Specialty Services segments have been combined and reported as one segment, Healthcare (effective Apr 1, 2020).

Revenues at Healthcare fell 10.3% year over year to $399.7 million (down 9.8% on a CER organic basis). In the quarter under review, service revenues declined 10% and consumable revenues fell 28%. Meanwhile, capital equipment revenues rose 6%.

Revenues at Applied Sterilization Technologies fell 1.2% to $152.4 million (down 0.2% at CER organic basis). CER organic revenues reflected increased demand for personal protective equipment products, which offset the impact of reduced volumes from the segment’s core medical device customers.

Revenues at the Life Sciences segment rose 20.8% to $116.9 million (21.5% at CER organic basis) on 34% growth in consumable revenues, 6% rise in service revenues and 14% improvement in capital equipment revenues. The segment was driven by continued robust performance from increased demand from pharma customers focused on vaccines and biologics.

Margins

Gross profit in the reported quarter was $285.6 million, down 6.9% from the prior-year quarter adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin contracted 133 basis points (bps) year over year to 42.7% in the reported quarter.

STERIS witnessed a 13.2% year-over-year contraction in selling, general and administrative expenses to $155.2 million. Research and development expenses increased 4.1% to $16.2 million. Adjusted operating expenses of $171.4 million fell 11.8% year over year.

Adjusted operating profit totaled $114.2 million, reflecting a 1.6% rise from the prior-year quarter. Further, adjusted operating margin in the first quarter expanded 94 bps to 17.1%.

Financial Details

STERIS exited the fiscal first quarter with cash and cash equivalents of $255.6 million compared with $319.6 million at the end of 2020.

Net cash flow from operating activities at the end of the fiscal first quarter was $134.1 million compared with $109.3 million a year ago.

The company’s free cash flow at the end of first-quarter fiscal 2021 was $67.4 million compared with $59.6 million in the year-ago period. Capital expenditure of the company at the end of the reported quarter was $66.9 million, up from $49.8 million in the year-ago period.

The company approved a quarterly interim dividend of 40 cents per share to shareholders, which is the 15th consecutive year of dividend increases.

Guidance

STERIS, due to uncertainties tied to the duration and impact of the pandemic on its operations, is not issuing any financial outlook for fiscal 2021 at the moment.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.6% due to these changes.

VGM Scores

Currently, Steris has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Steris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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