A month has gone by since the last earnings report for Steris (STE Quick QuoteSTE - Free Report) . Shares have lost about 3.4% in that time frame, underperforming 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 drivers.

STERIS Q2 Revenues Top Estimates, Margins Dip

STERIS plc reported second-quarter fiscal 2024 adjusted earnings per share of $2.03, up 2% from the year-ago quarter’s figure. However, the metric missed the Zacks Consensus Estimate by 1%.

The adjustment excludes the impacts of certain non-recurring charges like the amortization of acquired intangible assets and acquisition and integration-related charges, among others. The company’s GAAP earnings per share was $1.16 compared to the loss of $3.15 per share in the year-ago quarter.

Revenues in Detail

Revenues of $1.34 billion increased 11.8% year over year in the second quarter. The metric beat the Zacks Consensus Estimate by 4.1%. Organic revenues at the constant exchange rate or CER rose 8% year over year in the fiscal second quarter.

Quarter in Detail

The company operates through four segments — Healthcare, Applied Sterilization Technologies (“AST”), Life Sciences and Dental.

Revenues at Healthcare rose 18.7% year over year to $870.1 million (up 14% on a CER organic basis). This performance reflected a 20% improvement in capital equipment revenues, a 13% increase in service revenues and a 24% rise in consumable revenues. Going by our model, the projected revenues for the Healthcare segment in the fiscal second quarter was $797.7 million.

Revenues at AST improved 1.2% to $235.1 million (down 1% on a CER organic basis). Underlying service growth continues to be impacted by Medtech Customer inventory management and the reduction in demand from bioprocessing Customers. Our model estimated revenues for this business to be $239.4 million in the second quarter.

Revenues in the Life Sciences segment increased 5.8% to $133.1 million (up 5% year over year on a CER organic basis). This performance reflected an 18% increase in capital equipment revenues and a 3% increase in consumable revenues, while service revenues were flat compared with the second quarter last year. Our model’s projection was $138.7 million.

The Dental segment reported revenues of $104.2 million, down 4.9% year over year (down 6% on a CER organic basis). The reported figure also missed our model’s projected revenues of $107.9 million.

Margins

The gross profit in the reported quarter was $593.5 million, up 11.5% from the prior-year quarter. However, the gross margin contracted 13 basis points (bps) year over year to 44.2% on a 12.1% rise in the cost of revenues.

STERIS witnessed a 17.8% year-over-year rise in selling, general and administrative expenses to $380.7 million. Research and development expenses rose 8.5% to $27 million. Adjusted operating expenses of $407.7 million rose 17% year over year. The adjusted operating margin contracted 150 bps to 13.8%.

Financial Details

STERIS exited the second quarter of fiscal 2024 with cash and cash equivalents of $213.8 million compared with $208.6 million at the end of the fiscal first quarter of 2024.

Cumulative net cash flow from operating activities at the end of the fiscal second quarter was $427.2 million compared with $335.6 million at the end of the prior year’s comparable period. Further, the company has a five-year annualized dividend growth rate of 8.51%.

Guidance

STERIS reaffirmed its fiscal 2024 guidance, which was originally provided on the fiscal first-quarter earnings call.

STERIS expects fiscal 2024 revenues to increase 9-10% from fiscal 2023 (unchanged). Organic revenue expectation at CER also remains unchanged at 6-7%. The Zacks Consensus Estimate for fiscal 2024 revenues is pegged at $5.42 billion, implying 9.3% growth from fiscal 2023.

Adjusted earnings per share for fiscal 2024 are now expected in the range of $8.60-$8.80 (same as earlier). The Zacks Consensus Estimate for the metric is pegged at $8.73.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Steris has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. However, 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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

Performance of an Industry Player

Steris belongs to the Zacks Medical - Instruments industry. Another stock from the same industry, Inari Medical, Inc. (NARI Quick QuoteNARI - Free Report) , has gained 15.7% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Inari Medical, Inc. reported revenues of $126.37 million in the last reported quarter, representing a year-over-year change of +31.4%. EPS of $0.05 for the same period compares with -$0.19 a year ago.

For the current quarter, Inari Medical, Inc. is expected to post earnings of $0.03 per share, indicating a change of +127.3% from the year-ago quarter. The Zacks Consensus Estimate has changed +18.2% over the last 30 days.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Inari Medical, Inc. Also, the stock has a VGM Score of C.