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STERIS (STE) Q3 Earnings Beat & Revenues Miss, Margins Up

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STERIS plc (STE - Free Report) reported third-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.12, excluding net tax benefit of $25.7 million or 30 cents as a result of the U.S. tax reform. Reported EPS came in at $1.11.

The adjusted EPS figure was up 14.3% year over year and was 4.7% above the Zacks Consensus Estimate of $1.07.

Revenues in Detail

STERIS generated revenues of $661.9 million, up 2.3% year over year. Meanwhile, the top line missed the Zacks Consensus Estimate of $665.5 million. Organic revenue growth at constant currency was 5% year over year, mainly driven by high single-digit or low double-digit growth across majority of the segments.

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

Revenues at Healthcare Products remained relatively flat year over year at $324.9 million. This was largely due to a 9% decline in capital equipment revenues, offsetting a 9% rise in consumable revenues and a 6% increase in service revenues.

Revenues at the Healthcare Specialty Services segment fell 9.1% to $117.4 million on a reported basis due to linen divestitures. However, organic revenues grew 9%, reflecting growth at IMS North America.

STERIS PLC Price, Consensus and EPS Surprise

 

 

Revenues at Applied Sterilization Technologies rose 12.5% to $128.7 million, while organic revenues grew 9% on increased demand from core medical device customers.

Revenues at the Life Sciences segment grew 15.6% to $90.9 million on 8% growth in Service revenues, 12% increase in consumable revenues and 33% rise in capital equipment revenues. On an organic basis, revenues increased 14% year over year. 

Margins

Adjusted gross margin improved 230 basis points (bps) year over year to 42.1% in the reported quarter on account of synergies from divested low-margin businesses and a favorable product mix and pricing.

STERIS witnessed a 0.2% year-over-year rise in selling, general and administrative expenses to $159.1 million. Research and development expenses rose 4.1% to $15.2 million. Accordingly, adjusted operating margin expanded 280 bps on a year-over-year basis to 15.8% in the reported quarter.

Financial Details

STERIS exited third-quarter fiscal 2018 with cash and cash equivalents of $283.8 million, compared with $295.6 million at the end of second-quarter fiscal 2018. The company had long-term debt of $1.42 billion at the end of third-quarter fiscal 2018 compared with $1.45 billion at the end of second-quarter fiscal 2018.

Year to date, the company generated $327.9 million in cash flow from operations, up 13.3% from the year-ago period. Free cash flow in this period was $216.4 million compared with $181.9 million in the prior-year period.

2018 Guidance

STERIS continues to expect 4-5% of organic revenue growth in fiscal 2018 on a constant currency basis from the prior fiscal. The Zacks Consensus Estimate for fiscal 2018 revenues is pegged at $2.60 billion.

The company has raised it adjusted EPS outlook for fiscal 2018. The adjusted EPS is now projected in the range of $4.10-$4.16 in comparison to the previously provided range of $3.96-$4.09. The Zacks Consensus Estimate for fiscal 2018 adjusted EPS is pegged at $4.06, below the guided range.

Our Take

STERIS exited third-quarter fiscal 2018 on a mixed note. We are encouraged with 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).

A few better-ranked stocks that reported solid results this earnings season are PetMed Express (PETS - Free Report) , PerkinElmer (PKI - Free Report) and Becton, Dickinson and Company (BDX - Free Report) . While PetMed sports a Zacks Rank #1 (Strong Buy), PerkinElmer and Becton, Dickinson carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

PetMed recently reported third-quarter fiscal 2018 results. Adjusted earnings per share of 44 cents were up 88.3% from the prior-year quarter. Revenues rose 13.7% on a year-over-year basis to $60.1 million.

PerkinElmer reported fourth-quarter 2017 adjusted earnings per share of 97 cents. Adjusted revenues were approximately $641.6 million, up from $567 million in the year-ago quarter.

Becton, Dickinson reported first-quarter 2018 adjusted earnings per share of $2.48, up 3.9% at constant currency. Revenues were $3.08 billion, up 3.7% at constant currency.

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