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Why Is STERIS (STE) Up 5.2% Since Its Last Earnings Report?

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A month has gone by since the last earnings report for STERIS plc (STE - Free Report) . Shares have added about 5.2% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is STE due for a pullback? 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.

Recent Earnings

STERIS reported fourth-quarter fiscal 2018 adjusted earnings per share (EPS) of $1.24, up 11.7% year over year and 1.6% ahead of the Zacks Consensus Estimate. Reported EPS came in at 86 cents, a significant improvement from 31 cents a year ago.

The adjusted EPS figure for the full year was $4.15, up 10.4% from the year-ago period and also above the Zacks Consensus Estimate by a couple of cents.

STERIS generated revenues of $715.9 million in the fiscal fourth quarter, up 5.1% year over year. Moreover, the top line exceeded the Zacks Consensus Estimate of $710 million. Fiscal 2018 revenues came in at $2.61 billion, a marginal 0.3% improvement from the year-ago period. The annual figure is in line with the consensus mark.

Quarter in Detail

Organic revenue growth at constant currency was 5.2% year over year in the fiscal fourth quarter, mainly driven by balanced growth across all segments of the company.

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

Revenues at Healthcare Products increased 2% year over year to $360 million (up 4% on a constant currency organic basis). In the quarter under review, service revenues grew 7%, consumable revenues rose 2% and capital equipment revenues were flat year over year.

Revenues at the Healthcare Specialty Services segment were up 7.1% to $122.1 million (up 5% on a constant currency organic basis). The fourth quarter registered the final impact from the linen business divestitures year over year. Revenues at Applied Sterilization Technologies rose 11% to $133.5 million (up 5%), backed by increased demand from core medical device customers.

Revenues at Life Sciences segment grew 15% to $100.3 million (up 12%) on 9% growth in Service revenues and a 46% rise in capital equipment revenues. Consumable revenues were flat year over year.

Margins

Adjusted gross margin improved 70 basis points (bps) year over year to 42% in the reported quarter. Per STERIS, gross margin expansion was fueled by a favorable product mix and price along with a 60-basis point improvement from divestitures. Currency had an unfavorable impact of 60 basis points on the gross margin.

STERIS witnessed a 21.4% year-over-year decline in selling, general and administrative expenses to $161.6 million. Research and development expenses rose 11.7% to $15.2 million. Accordingly, adjusted operating margin expanded 280 bps on a year-over-year basis to 17.6% in the reported quarter.

Financial Details

STERIS exited the fiscal 2018 with cash and cash equivalents of $201.5 million compared with $282.9 million at the end of fiscal 2017. The company had long-term debt of $1.32 billion at the end of the fiscal fourth quarter compared with $1.48 billion at the end of fourth-quarter fiscal 2017.

For the full year, the company generated $457.6 million in cash flow from operations, up 7.9% from the year-ago period. While free cash flow was $294.3 million compared with $256 million in the prior year.

2019 Guidance

STERIS expects 4-5% of constant currency organic revenue growth in fiscal 2019 from the prior fiscal. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.73 billion.

Adjusted EPS outlook for fiscal 2019 has been projected in the range of $4.63-$4.75. The consensus estimate for fiscal 2019 adjusted EPS  lies within the guided range at $4.71.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. There has been one revision lower for the current quarter.

STERIS plc Price and Consensus

 

STERIS plc Price and Consensus | STERIS plc Quote

VGM Scores

At this time, STE has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. The stock was also 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.

Based on our scores, the stock is more suitable for growth investors than those looking for value and momentum.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision indicates a downward shift. Interestingly, STE has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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