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STERIS (STE) Q4 Earnings Surpass Estimates, Gross Margin Rises

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STERIS plc (STE - Free Report) reported fourth-quarter fiscal 2022 adjusted earnings per share (EPS) of $2.04, rising 25.2% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 2%.

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

The company’s GAAP EPS was 52 cents, down 49% from the year-ago EPS of $1.02.

For the full year, adjusted earnings were $7.92 per share, growing 28.4% from the year-ago period. It also beat the Zacks Consensus Estimate by 0.3%.

Revenues in Detail

Revenues of $1.21 billion improved 38.6% year over year in the quarter. The metric beat the Zacks Consensus Estimate by 2.6%. 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 11% year over year in the fiscal fourth quarter.

Full-year revenues were $4.59 billion, reflecting a 47.5% increase from the year-ago period. Revenues surpassed the Zacks Consensus Estimate by 0.9%.

Quarter in Detail

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

Revenues at Healthcare rose 32% year over year to $738.8 million (up 7% on a CER organic basis) on a 63% increase in consumable revenues, a 21% rise in service revenue and a 17% improvement in capital equipment revenues.

Revenues at Applied Sterilization Technologies improved 19% to $222.9 million (up 22% on a CER organic basis). CER organic revenue growth was driven by increased demand from medical device and biopharma customers.

STERIS plc Price, Consensus and EPS Surprise

 

Revenues at the Life Sciences segment rose 15% to $143.3 million (up 12% on a CER organic basis) on 18% growth in consumable revenues, a 13% rise in capital equipment revenues and a 14% increase in service revenues.

The Dental segment reported revenues of $105.7 million.

Margins

Gross profit in the reported quarter was $571.6 million, up 50.5% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 373 basis points (bps) year over year to 47.2% in the reported quarter.

STERIS witnessed a 105.2% year-over-year surge in selling, general and administrative expenses to $453.6 million. Research and development expenses rose 49% to $26.1 million. Adjusted operating expenses of $479.7 million escalated 101.1% year over year.

Accordingly, adjusted operating profit totaled $91.9 million, reflecting a 34.9% decline from the prior-year quarter. The adjusted operating margin contracted 858 bps to 7.6%.

Financial Details

STERIS exited 2022 with cash and cash equivalents of $348.3 million compared with $220.5 million at the end of fiscal 2021.

Cumulative net cash flow from operating activities at the end of fiscal 2022 was $684.8 million compared with $689.6 million a year ago.

The company’s free cash flow at the end of the fiscal fourth quarter was $399 million compared with $450.9 million in the year-ago period.

Further, the company has a five-year annualized dividend growth rate of 8.79%.

Guidance

STERIS has provided its financial guidance for fiscal 2023.

The company projects constant-currency organic revenue growth of 11%. The Zacks Consensus Estimate for revenues is pegged at $4.89 billion.

Adjusted earnings per diluted share are anticipated to be $8.55-$8.75. The Zacks Consensus Estimate for the metric is pegged at $8.79.

Our Take

STERIS exited fourth-quarter fiscal 2022 with better-than-expected earnings and revenues. The year-over-year growth in revenues and earnings appears promising. Robust performances across three of STERIS’ reporting segments contributed to top-line growth. The significant revenue contributions from acquisitions in the quarter buoy optimism. The expansion in gross margin is an added advantage. The bullish guidance for fiscal 2023 is indicative that this growth momentum will continue.

However, the year-over-year decline in free cash flow, given anticipated costs associated with the Cantel Medical acquisition and increased capital spending, does not bode well. Escalating operating expenses, resulting in a contraction of adjusted operating margin, raise apprehension. Further, the ongoing supply-chain challenges and inflation are downsides.

Zacks Rank and Key Picks

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

A few better-ranked stocks in the broader medical space, which have announced quarterly results, are UnitedHealth Group Incorporated (UNH - Free Report) , Medpace Holdings, Inc. (MEDP - Free Report) and Alkermes plc (ALKS - Free Report) .

UnitedHealth, with a Zacks Rank #2 (Buy) at present, reported first-quarter 2022 earnings per share (EPS) of $5.49, which beat the Zacks Consensus Estimate by 1.7%. Revenues of $80.1 billion outpaced the consensus mark by 14.2%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

UnitedHealth has an estimated long-term growth rate of 14.8%. UNH’s earnings surpassed estimates in the trailing four quarters, the average surprise being 3.7%.

Medpace reported first-quarter 2022 adjusted EPS of $1.69, which surpassed the Zacks Consensus Estimate by 34.1%. Revenues of $330.9 million outpaced the Zacks Consensus Estimate by 1.1%. It currently has a Zacks Rank #2.

Medpace has a historical growth rate of 27.3%. MEDP’s earnings surpassed estimates in the trailing four quarters, the average surprise being 17.1%.

Alkermes reported first-quarter 2022 adjusted EPS of 12 cents, which surpassed the Zacks Consensus Estimate of a penny. Revenues of $278.6 million outpaced the Zacks Consensus Estimate by 6.2%. It currently sports a Zacks Rank #1.

Alkermes has an estimated long-term growth rate of 25.1%. ALKS’ earnings surpassed estimates in the trailing four quarters, the average surprise being 350.5%.