• Total Revenue Growth: 7% in the second quarter.
• Constant Currency Organic Revenue Growth: 7% in the quarter.
• Gross Margin: Decreased 50 basis points to 43.7%.
• EBIT Margin: Decreased 30 basis points to 22.2% of revenue.
• Net Income from Continuing Operations: $212.2 million.
• Adjusted Earnings Per Share: $2.14, a 15% increase over last year.
• Capital Expenditures: $210 million for the first half of fiscal 2025.
• Depreciation and Amortization: $228 million for the first half of fiscal 2025.
• Total Debt: $2.2 billion, with a debt to EBITDA ratio of approximately 1.5 times.
• Free Cash Flow: $344.5 million for the first half of fiscal 2025.
• Healthcare Segment Revenue Growth: 7% constant currency organic growth.
• AST Segment Revenue Growth: 9% constant currency organic growth.
• Life Sciences Revenue Growth: 3% constant currency organic growth.
• Full Year Revenue Growth Outlook: 6% to 7% constant currency organic growth.
• Full Year Adjusted EPS Outlook: $9.05 to $9.25.
• Full Year Free Cash Flow Outlook: Approximately $700 million.

• Warning! GuruFocus has detected 4 Warning Sign with STE.

Release Date: November 07, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Steris PLC (NYSE:STE) reported a 7% growth in total as-reported revenue for the second quarter, maintaining momentum from the start of the fiscal year.
• Adjusted earnings per share from continuing operations increased by 15% over the previous year, reaching $2.14.
• The company successfully reduced its total debt, ending the quarter with $2.2 billion and a total debt to EBITDA ratio of approximately 1.5 times.
• Healthcare segment saw a 7% growth in constant currency organic revenue, driven by strong recurring revenue streams and market share gains.
• Life Sciences segment experienced a 3% growth in constant currency organic revenue, with strong growth in consumables contributing positively to margins.

Negative Points

• Gross margin for the quarter decreased by 50 basis points to 43.7%, impacted by labor inflation and productivity challenges.
• EBIT margin decreased by 30 basis points to 22.2% of revenue compared to the previous year.
• Healthcare capital equipment revenue declined by 2% due to the timing of shipments, with expectations for flat to slightly down revenue for fiscal 2025.
• AST segment faced margin pressures due to labor and energy costs, and a significant loss on a capital equipment order in the med-x business unit.
• The company no longer expects to achieve double-digit revenue growth in the AST segment by the end of the fiscal year, citing slower-than-expected bioprocessing demand recovery.

Q & A Highlights

Q: Can you explain the impact of the loss on the large equipment sale in the AST segment and whether it was included in the guidance for the year? A: The loss impacted margins by about 200 basis points. While a loss was anticipated, the magnitude was larger than expected. This was a one-time event related to an order from the Med-X acquisition in 2020, and it was included in the adjusted EPS guidance. - Mike Tokich, CFO & SVP

Q: What are the reasons for not expecting AST to exit the year at double-digit growth, and how does bioprocessing factor into this? A: We are optimistic about bioprocessing contributing to growth in the second half of the year. However, the growth in medtech has not met expectations, and while improvement is anticipated, double-digit growth may not be achieved by the fourth quarter. - Dan Carestio, President, CEO, & Director

Q: Could you elaborate on the healthcare capital equipment revenue outlook and the factors affecting it? A: The outlook has been adjusted to flat to slightly down due to shipment delays caused by weather-related issues. Despite this, the backlog remains strong, and higher profit from consumables and services is expected to offset the lower capital equipment revenue. - Dan Carestio, President, CEO, & Director

Q: How do you view the current M&A pipeline, and is there potential for increased share repurchase if opportunities are limited? A: The M&A pipeline is robust, focusing on smaller tuck-in acquisitions. We have financial capacity for acquisitions and have repurchased $100 million in shares in the first half of the fiscal year. - Dan Carestio, President, CEO, & Director and Mike Tokich, CFO & SVP

Q: What is driving the strong demand in healthcare consumables and services, and where are you seeing share gains? A: The growth is driven by strong procedure volumes in the US and strategic positioning in IDM GPO contracts, particularly in sterile processing. The consumables and services businesses are performing exceptionally well. - Dan Carestio, President, CEO, & Director

For the complete transcript of the earnings call, please refer to the full earnings call transcript.