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Why Is Steris (STE) Down 3.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Steris (STE - Free Report) . Shares have lost about 3.7% in that time frame, outperforming the S&P 500.

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

STERIS Q3 Earnings Surpass Estimates, Revenues Miss

STERIS reported third-quarter fiscal 2022 adjusted earnings per share of $2.12, up 22.5% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 8.7%.

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

The company’s GAAP earnings per share was $1.42, up 6.8% from the year-ago earnings per share of $1.33.

Revenues in Detail

Revenues of $1.21 billion improved 49.5% year over year in the quarter. However, the metric lagged the Zacks Consensus Estimate by 0.1%. The year-over-year uptick was led by robust sales across three of the company’s reporting segments.

Organic revenues at constant currency or CER rose 9% year over year in the fiscal third quarter.

Quarter in Detail

The company operates through four segments — Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.

Revenues at Healthcare rose 45.6% year over year to $759.7 million (up 5% on a CER organic basis) on an 84% increase in consumable revenues, a 19% increase in service revenue and a 47% improvement in capital equipment revenues.

Revenues at Applied Sterilization Technologies improved 22.6% to $216.3 million (up 18% on a CER organic basis). CER organic revenues growth was driven by higher demand from medical device and biopharma customers during the quarter.

Revenues at the Life Sciences segment rose 15.4% to $127.9 million (up 9% on a CER organic basis) on 23% growth in consumable revenues, 5% rise in capital equipment revenues and 13% increase in service revenues.

The Dental segment reported revenues of $105.1 million.

Margins

Gross profit in the reported quarter was $538.1 million, up 55.6% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 175 basis points (bps) year over year to 44.5% in the reported quarter.

STERIS witnessed a 70.3% year-over-year surge in selling, general and administrative expenses to $310.6 million. Research and development expenses rose 51% to $24.8 million. Adjusted operating expenses of $335.4 million escalated 68.7% year over year.

Accordingly, adjusted operating profit totaled $202.7 million, reflecting a 37.9% improvement from the prior-year quarter. Adjusted operating margin contracted 141 bps to 16.8%.

Financial Details

STERIS exited third-quarter fiscal 2022 with cash and cash equivalents of $359.1 million compared with $383.5 million at the end of second-quarter fiscal 2022.

Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2022 was $513.1 million compared with $501.8 million a year ago.

The company’s free cash flow at the end of the fiscal third quarter was $300.3 million compared with $337.7 million in the year-ago period.

The company approved a quarterly interim dividend of 43 cents per share to shareholders.

Further, the company has a five-year annualized dividend growth rate of 9.12%.

Guidance

STERIS has updated its financial guidance for fiscal 2022.

The company projects constant currency organic revenue growth of about 11%, compared with the previously-guided 10-11%. The Zacks Consensus Estimate for the same is pegged at $4.56 billion.

Adjusted earnings per diluted share are anticipated in the band of $7.85-$7.95 (up from the prior expectation of $7.60-$7.85). The Zacks Consensus Estimate for the metric is pegged at $7.75.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Steris has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, 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 this revision 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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