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STERIS (STE) Q3 Earnings Surpass Estimates, Revenues Miss
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STERIS plc (STE - Free Report) reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $2.12, up 22.5% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 8.7%.
The adjustment excludes the impact of certain non-recurring charges like amortization of acquired intangible assets, acquisition and integration-related charges, and amortization of inventory and property step up to fair value.
The company’s GAAP EPS was $1.42, up 6.8% from the year-ago EPS of $1.33.
Revenues in Detail
Revenues of $1.21 billion improved 49.5% year over year in the quarter. However, the metric lagged the Zacks Consensus Estimate by 0.1%. The year-over-year uptick was led by robust sales across three of the company’s reporting segments.
Organic revenues at constant currency or CER rose 9% year over year in the fiscal third quarter.
Quarter in Detail
The company operates through four segments — Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.
Revenues at Healthcare rose 45.6% year over year to $759.7 million (up 5% on a CER organic basis) on an 84% increase in consumable revenues, a 19% increase in service revenue and a 47% improvement in capital equipment revenues.
Revenues at Applied Sterilization Technologies improved 22.6% to $216.3 million (up 18% on a CER organic basis). CER organic revenues growth was driven by higher demand from medical device and biopharma customers during the quarter.
Revenues at the Life Sciences segment rose 15.4% to $127.9 million (up 9% on a CER organic basis) on 23% growth in consumable revenues, 5% rise in capital equipment revenues and 13% increase in service revenues.
The Dental segment reported revenues of $105.1 million.
Margins
Gross profit in the reported quarter was $538.1 million, up 55.6% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 175 basis points (bps) year over year to 44.5% in the reported quarter.
STERIS witnessed a 70.3% year-over-year surge in selling, general and administrative expenses to $310.6 million. Research and development expenses rose 51% to $24.8 million. Adjusted operating expenses of $335.4 million escalated 68.7% year over year.
Accordingly, adjusted operating profit totaled $202.7 million, reflecting a 37.9% improvement from the prior-year quarter. Adjusted operating margin contracted 141 bps to 16.8%.
Financial Details
STERIS exited third-quarter fiscal 2022 with cash and cash equivalents of $359.1 million compared with $383.5 million at the end of second-quarter fiscal 2022.
Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2022 was $513.1 million compared with $501.8 million a year ago.
The company’s free cash flow at the end of the fiscal third quarter was $300.3 million compared with $337.7 million in the year-ago period.
The company approved a quarterly interim dividend of 43 cents per share to shareholders.
STERIS has updated its financial guidance for fiscal 2022.
The company projects constant currency organic revenue growth of about 11%, compared with the previously-guided 10-11%. The Zacks Consensus Estimate for the same is pegged at $4.56 billion.
Adjusted earnings per diluted share are anticipated in the band of $7.85-$7.95 (up from the prior expectation of $7.60-$7.85). The Zacks Consensus Estimate for the metric is pegged at $7.75.
Our Take
STERIS exited third-quarter fiscal 2022 with better-than-expected earnings. The year-over-year growth in revenues and earnings appears promising. Robust performance across three of STERIS’ reporting segments contributed to top-line growth. The significant revenue contributions from acquisitions during the quarter buoy optimism. Expansion in gross margin is an added advantage. The raised EPS guidance for fiscal 2022 is indicative that this growth momentum will continue.
However, the year-over-year decline in free cash flow given anticipated costs associated with the Cantel Medical acquisition and increased capital spending does not bode well. Escalating operating expenses resulting in a contraction of adjusted operating margin raise apprehension. Further, the ongoing supply chain challenges and inflation are downsides.
Zacks Rank and Key Picks
STERIS currently carries a Zacks Rank #4 (Sell).
Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.
AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 6.3% compares favorably with the industry’s 0.7%.
Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) has an Earnings ESP of +5.38% and a Zacks Rank of #2. Allscripts will release fourth quarter and full-year 2021 results on Feb 24.
Allscripts’ long-term earnings growth rate is estimated at 11.1%. MDRX’s earnings yield of 4.9% compares favorably with the industry’s (4.9%).
Henry Schein, Inc. (HSIC - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank of 2. The company will report fourth quarter and full-year 2021 results on Feb 15.
Henry Schein’s long-term earnings growth rate is estimated at 11.8%. HSIC’s earnings yield of 6.1% compares favorably with the industry’s 4.1%.
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STERIS (STE) Q3 Earnings Surpass Estimates, Revenues Miss
STERIS plc (STE - Free Report) reported third-quarter fiscal 2022 adjusted earnings per share (EPS) of $2.12, up 22.5% from the year-ago figure. The metric surpassed the Zacks Consensus Estimate by 8.7%.
The adjustment excludes the impact of certain non-recurring charges like amortization of acquired intangible assets, acquisition and integration-related charges, and amortization of inventory and property step up to fair value.
The company’s GAAP EPS was $1.42, up 6.8% from the year-ago EPS of $1.33.
Revenues in Detail
Revenues of $1.21 billion improved 49.5% year over year in the quarter. However, the metric lagged the Zacks Consensus Estimate by 0.1%. The year-over-year uptick was led by robust sales across three of the company’s reporting segments.
Organic revenues at constant currency or CER rose 9% year over year in the fiscal third quarter.
Quarter in Detail
The company operates through four segments — Healthcare, Applied Sterilization Technologies, Life Sciences and Dental.
Revenues at Healthcare rose 45.6% year over year to $759.7 million (up 5% on a CER organic basis) on an 84% increase in consumable revenues, a 19% increase in service revenue and a 47% improvement in capital equipment revenues.
Revenues at Applied Sterilization Technologies improved 22.6% to $216.3 million (up 18% on a CER organic basis). CER organic revenues growth was driven by higher demand from medical device and biopharma customers during the quarter.
STERIS plc Price, Consensus and EPS Surprise
STERIS plc price-consensus-eps-surprise-chart | STERIS plc Quote
Revenues at the Life Sciences segment rose 15.4% to $127.9 million (up 9% on a CER organic basis) on 23% growth in consumable revenues, 5% rise in capital equipment revenues and 13% increase in service revenues.
The Dental segment reported revenues of $105.1 million.
Margins
Gross profit in the reported quarter was $538.1 million, up 55.6% from the prior-year quarter’s adjusted gross profit (excluding costs and benefits of revenues for restructuring). Gross margin expanded 175 basis points (bps) year over year to 44.5% in the reported quarter.
STERIS witnessed a 70.3% year-over-year surge in selling, general and administrative expenses to $310.6 million. Research and development expenses rose 51% to $24.8 million. Adjusted operating expenses of $335.4 million escalated 68.7% year over year.
Accordingly, adjusted operating profit totaled $202.7 million, reflecting a 37.9% improvement from the prior-year quarter. Adjusted operating margin contracted 141 bps to 16.8%.
Financial Details
STERIS exited third-quarter fiscal 2022 with cash and cash equivalents of $359.1 million compared with $383.5 million at the end of second-quarter fiscal 2022.
Cumulative net cash flow from operating activities at the end of third-quarter fiscal 2022 was $513.1 million compared with $501.8 million a year ago.
The company’s free cash flow at the end of the fiscal third quarter was $300.3 million compared with $337.7 million in the year-ago period.
The company approved a quarterly interim dividend of 43 cents per share to shareholders.
Further, the company has a five-year annualized dividend growth rate of 9.12%.
Guidance
STERIS has updated its financial guidance for fiscal 2022.
The company projects constant currency organic revenue growth of about 11%, compared with the previously-guided 10-11%. The Zacks Consensus Estimate for the same is pegged at $4.56 billion.
Adjusted earnings per diluted share are anticipated in the band of $7.85-$7.95 (up from the prior expectation of $7.60-$7.85). The Zacks Consensus Estimate for the metric is pegged at $7.75.
Our Take
STERIS exited third-quarter fiscal 2022 with better-than-expected earnings. The year-over-year growth in revenues and earnings appears promising. Robust performance across three of STERIS’ reporting segments contributed to top-line growth. The significant revenue contributions from acquisitions during the quarter buoy optimism. Expansion in gross margin is an added advantage. The raised EPS guidance for fiscal 2022 is indicative that this growth momentum will continue.
However, the year-over-year decline in free cash flow given anticipated costs associated with the Cantel Medical acquisition and increased capital spending does not bode well. Escalating operating expenses resulting in a contraction of adjusted operating margin raise apprehension. Further, the ongoing supply chain challenges and inflation are downsides.
Zacks Rank and Key Picks
STERIS currently carries a Zacks Rank #4 (Sell).
Here are a few stocks worth considering, as these have the right combination of elements to beat on earnings this reporting cycle.
AMN Healthcare Services, Inc. (AMN - Free Report) has an Earnings ESP of +10.29% and a Zacks Rank of #2 (Buy). The company is slated to release fourth-quarter and full-year 2021 results on Feb 17. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
AMN Healthcare’s long-term earnings growth rate is estimated at 16.2%. AMN’s earnings yield of 6.3% compares favorably with the industry’s 0.7%.
Allscripts Healthcare Solutions, Inc. (MDRX - Free Report) has an Earnings ESP of +5.38% and a Zacks Rank of #2. Allscripts will release fourth quarter and full-year 2021 results on Feb 24.
Allscripts’ long-term earnings growth rate is estimated at 11.1%. MDRX’s earnings yield of 4.9% compares favorably with the industry’s (4.9%).
Henry Schein, Inc. (HSIC - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank of 2. The company will report fourth quarter and full-year 2021 results on Feb 15.
Henry Schein’s long-term earnings growth rate is estimated at 11.8%. HSIC’s earnings yield of 6.1% compares favorably with the industry’s 4.1%.