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Why Is Steris (STE) Down 0.6% Since Last Earnings Report?

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A month has gone by since the last earnings report for Steris (STE - Free Report) . Shares have lost about 0.6% 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 its most recent earnings report in order to get a better handle on the important catalysts.

STERIS Posts Strong Q2 on Balanced Segmental Growth

STERIS reported second-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.10, up 17% year over year. The metric surpassed the Zacks Consensus Estimate of $1.08 by 1.9%. Reported EPS came in at 91 cents, up from the year-ago 75 cents.

STERIS generated revenues of $679 million in the fiscal second quarter, up 7.1% year over year. Revenues also topped the Zacks Consensus Estimate by 3.4%.
 
Quarter in Detail

Organic revenue growth at constant currency was 9% year over year in the fiscal second quarter, mainly driven by growth across all segments.

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

Revenues at Healthcare Products increased 6% year over year to $321.5 million (up 11% on a constant currency organic basis). In the quarter under review, service revenues grew 6% and capital equipment revenues rose 12%. Meanwhile, consumable revenues grew 1% on divestitures limiting growth.

Revenues at the Healthcare Specialty Services segment were up 7% to $124.6 million (up 7% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 7% to $135.7 million (up 8%) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 9% to $97.2 million (up 9%) on 27% growth in capital equipment revenues along with 2% rise in service and consumable revenues.

Margins

Adjusted gross margin declined 10 basis points (bps) year over year to 41.9% in the reported quarter. Per STERIS, shift of revenue mix toward capital equipment and investments along with outsourced reprocessing in the United States led to the decline in gross margin. However, benefits from favorable currency movement and price along with gains from divestitures had partially offset the decline.

STERIS witnessed a 5.5% year-over-year rise in selling, general and administrative expenses to $162.3 million. Research and development expenses rose 12.9% to $15.8 million. However, adjusted operating margin expanded 20 bps on a year-over-year basis to 15.7% in the reported quarter.

Financial Details

STERIS exited second-quarter fiscal 2019 with cash and cash equivalents of $209.9 million compared with $218.5 million at the end of first-quarter fiscal 2018. The company had long-term debt of $1.27 billion at the end of the second quarter compared with $1.32 billion at the end of first quarter fiscal 2018.

For the first six months of fiscal 2019, the company generated $226.7 million in cash flow from operations, up from $217.4 million in the year-ago period. Further, free cash flow in the same period was $169.7 million compared with $144 million a year ago.

2019 Guidance Revised

Based on the results for the first half of fiscal 2019, STERIS updated its full year projections for constant currency organic revenue growth to 5-6% from 4-5%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.73 billion.

The company also revised the adjusted EPS guidance for fiscal 2019 to the range of $4.74-$4.84 compared with $4.63-$4.75, stated previously. 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 an upward trend in fresh estimates.

VGM Scores

Currently, Steris has an average Growth Score of C, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. 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 these revisions looks promising. It comes with little surprise Steris has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.




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