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Why Is Steris (STE) Up 1.2% 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 added about 1.2% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steris 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.

STERIS Posts Strong Q3 on Balanced Segmental Growth

STERIS reported third-quarter fiscal 2019 adjusted earnings per share (EPS) of $1.26, up 12.5% year over year. The metric is in line with the Zacks Consensus Estimate. Reported EPS came in at 56 cents, down from the year-ago $1.11.

Revenues of $696.2 million in the fiscal third quarter rose 5.2% year over year. Revenues also topped the Zacks Consensus Estimate by 1.2%.

Quarter in Detail

Organic revenue growth at constant currency was 7% year over year in the fiscal third 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 4% year over year to $338.3 million (up 7% on a constant currency organic basis). In the quarter under review, service revenues grew 4% and capital equipment revenues rose 7%. Meanwhile, consumable revenues grew 1% on divestitures limiting growth.

Revenues at the Healthcare Specialty Services segment were up 9% to $127.8 million (up 10% on a constant currency organic basis).

Revenues at Applied Sterilization Technologies rose 6% to $136.8 million (up 8%) backed by increased demand from core medical device customers.

Revenues at Life Sciences segment rose 3% to $93.5 million (up 4%) on 9% growth in consumable revenues along with a 5% rise in service revenues. However, capital equipment revenues declined 8% year over year.

Margins

Adjusted gross margin (after excluding cost of revenues for restructuring) expanded 50 basis points (bps) year over year to 42.5% in the reported quarter.

STERIS witnessed a 10.3% year-over-year rise in selling, general and administrative expenses to $176.1 million. Research and development expenses declined 0.2% to $15.2 million. However, adjusted operating margin contracted 190 bps on a year-over-year basis to 13.7% in the reported quarter.

Financial Details

STERIS exited third-quarter fiscal 2019 with cash and cash equivalents of $224.9 million compared with $209.9 million at the end of second-quarter fiscal 2019. The company had long-term debt of $1.25 billion at the end of the third quarter compared with $1.27 billion at the end of second quarter fiscal 2019.

For the first nine months of fiscal 2019, the company generated $360.6 million in cash flow from operations, up from $327.9 million in the year-ago period. Further, free cash flow in the same period was $252.9 million compared with $216.4 million a year ago.

2019 Guidance

Based on the results for the first nine months of fiscal 2019, STERIS updated its full-year projections for constant currency organic revenue growth to around 6% from 5-6%. The Zacks Consensus Estimate for fiscal 2019 revenues is pegged at $2.75 billion.

The company continues to expect the adjusted EPS guidance for fiscal 2019 in the range of $4.74-$4.84. The consensus estimate for fiscal 2019 adjusted EPS lies at $4.78.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month.

VGM Scores

At this time, Steris has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Steris has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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