Mentor, Ohio-based STERIS plc (STE) provides infection prevention products and services. Valued at $25.7 billion by market cap, the company offers sterilizers, washers, surgical tables, lights and equipment management systems, and endoscopy accessories. Companies worth $10 billion or more are generally described as “large-cap stocks,” and STE perfectly fits that description, with its market cap exceeding this mark, underscoring its size, influence, and dominance within the medical devices industry. STE is ...

Key Takeaways STERIS sees strong AST momentum, with service revenues up 13% and division growth of 10%. STE's Healthcare revenues rose 9% on robust consumables, capital equipment and expanding service demand. Foreign-exchange volatility and higher operating expenses continue to pressure STERIS' performance. STERIS plc’s (STE) service revenues are driving growth in its Applied Sterilization Technologies (“AST”). The Healthcare segment is gaining from the successful market adoption of its comprehensive offeri ...

Core Viewpoint - Steris (STE) has been upgraded to a Zacks Rank 2 (Buy), indicating a positive outlook on its earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system emphasizes the importance of changing earnings estimates, which are closely correlated with near-term stock price movements [4][6]. - Institutional investors often rely on earnings estimates to determine a company's fair value, leading to buying or selling actions that affect stock prices [4]. Company Performance and Investor Sentiment - The upgrade for Steris reflects an improvement in its underlying business, suggesting that investors may respond positively by driving the stock price higher [5]. - Over the past three months, the Zacks Consensus Estimate for Steris has increased by 1.9%, with expected earnings of $10.20 per share for the fiscal year ending March 2026, indicating stability in earnings year-over-year [8]. Zacks Rank System - The Zacks Rank system categorizes stocks based on earnings estimate revisions, with only the top 20% of stocks receiving a "Strong Buy" or "Buy" rating, highlighting Steris's favorable position in this ranking [9][10]. - Stocks rated Zacks Rank 1 have historically generated an average annual return of +25% since 1988, showcasing the effectiveness of the rating system [7].

Core Insights - STERIS plc is a global provider of infection prevention products and services with a market cap of approximately $25 billion, serving hospitals, healthcare providers, and pharmaceutical manufacturers [1] - The company has shown strong stock performance, with a 20.2% return over the past 52 weeks, outperforming the S&P 500 Index's 12.3% gain [2] - STERIS reported a 10% revenue increase to $1.46 billion in Q2 2026, with adjusted EPS of $2.47, leading to a 6.9% stock price increase following the results [4] Financial Performance - For the fiscal year ending in March 2026, analysts project STERIS' adjusted EPS to grow nearly 11% year-over-year to $10.23, with a history of meeting or exceeding consensus estimates [5] - The company raised its fiscal 2026 outlook, increasing adjusted EPS guidance to $10.15 - $10.30 and expected free cash flow to $850 million [4] Analyst Ratings - The consensus rating among nine analysts covering STERIS is a "Moderate Buy," consisting of six "Strong Buy" ratings and three "Holds" [5] - Morgan Stanley raised its price target on STERIS to $295, indicating a potential upside of 12.3% from the current price, with a Street-high target of $300 suggesting a 17.8% upside [6]

Core Insights - The performance of Steris' international operations is critical for understanding its financial strength and growth potential [1][2][3] Group 1: Financial Performance - For the quarter ending September 2025, Steris reported total revenue of $1.46 billion, reflecting a year-over-year increase of 9.9% [4] - Revenue from Ireland was $27.3 million, accounting for 1.9% of total revenue, which was a surprise increase of 9.9% compared to expectations [5] - Other Foreign Revenues generated $357.8 million, constituting 24.5% of total revenue, but fell short of the projected $406.57 million by 12% [6] Group 2: Revenue Projections - Analysts anticipate that Steris will achieve revenues of $1.49 billion in the current fiscal quarter, representing an 8.7% increase year-over-year [7] - For the entire year, total revenue is forecasted to reach $5.92 billion, an improvement of 8.4% from the previous year, with expected contributions of 2.1% from Ireland and 26.5% from Other Foreign Revenues [8] Group 3: Market Context - The company's reliance on international markets presents both opportunities and risks, making it essential to monitor international revenue trends for forecasting [9] - Financial analysts are increasingly focused on international developments to refine earnings estimates, influenced by local market conditions [10]

Revenue Growth - Revenues increased 9.9% to $1,460.3 million for the three months ended September 30, 2025, compared to $1,328.9 million for the same period in the prior year[158]. - Revenues increased 9.3% to $2,851.4 million for the six months ended September 30, 2025, compared to $2,608.4 million for the same period in the prior year[158]. - Total revenues increased by 9.9% to $1,460.3 million for the three months ended September 30, 2025, and by 9.3% to $2,851.4 million for the six months ended September 30, 2025, compared to the same periods in 2024[199]. - Service revenues rose by 12.9% to $714.9 million for the three months ended September 30, 2025, reflecting growth across all segments[171]. - United States revenues increased by 9.8% to $1,075.2 million for the three months ended September 30, 2025, compared to $979.5 million for the same period in 2024[172]. - Ireland revenues increased by 19.8% to $27.3 million for the three months ended September 30, 2025, compared to $22.8 million in the prior year[172]. - Healthcare segment revenues increased by 9.5% to $1,033.8 million for the three months ended September 30, 2025, and by 8.8% to $2,008.5 million for the six months ended September 30, 2025, compared to the same periods in 2024[200]. - AST segment revenues increased by 9.7% to $281.5 million for the three months ended September 30, 2025, and by 11.1% to $562.7 million for the six months ended September 30, 2025, compared to the same periods in 2024[202]. - Life Sciences segment revenues increased by 13.3% to $145.0 million for the three months ended September 30, 2025, and by 9.3% to $280.2 million for the six months ended September 30, 2025, compared to the same periods in 2024[203]. Profitability - Gross profit percentage for the second quarter of fiscal 2026 was 44.2%, up from 43.6% in the second quarter of fiscal 2025[159]. - Gross profit for the three months ended September 30, 2025, was $645.9 million, an increase of 11.6% from $578.8 million in the prior year[180]. - The Healthcare segment's operating margins were 25.1% for the second quarter of fiscal 2026, compared to 24.1% for the same period in fiscal 2025[204]. - The AST segment's operating margins were 45.3% for the second quarter of fiscal 2026, compared to 42.8% for the same period in fiscal 2025[206]. - Healthcare segment operating income increased 13.8% to $259.5 million for the three months ended September 30, 2025, compared to $228.0 million in the same prior year period[204]. - AST segment operating income rose 16.1% to $127.6 million for the three months ended September 30, 2025, compared to $109.9 million during the same prior year period[206]. - Life Sciences segment operating income increased 11.5% to $59.9 million for the three months ended September 30, 2025, compared to $53.7 million for the same prior year period[207]. Cash Flow and Capital Management - Cash flows from operations were $707.8 million for the first six months of fiscal 2026, compared to $554.5 million for the same period in fiscal 2025[161]. - Free cash flow was $527.7 million for the first six months of fiscal 2026, compared to $344.5 million for the same period in fiscal 2025[161]. - Net cash provided by operating activities was $707.8 million for the first six months of fiscal 2026, up from $554.5 million in the first six months of fiscal 2025[208]. - Free cash flow increased to $527.7 million in the first six months of fiscal 2026 from $344.5 million in the same period of fiscal 2025[212]. - Capital expenditures totaled $180.1 million for the first six months of fiscal 2026, down from $210.0 million during the same prior year period[210]. - The debt-to-total capital ratio was 21.3% at September 30, 2025, down from 23.6% at March 31, 2025[162]. - Debt-to-total capital ratio improved to 21.3% at September 30, 2025, down from 25.3% at September 30, 2024[213]. - The company declared and paid cash dividends totaling $1.20 per ordinary share during the first six months of fiscal 2026[162]. - Total cash dividends paid to ordinary shareholders increased to $118.1 million, or $1.20 per share, in the first six months of fiscal 2026, compared to $107.7 million, or $1.09 per share, in the same period of fiscal 2025[219]. Expenses and Taxation - Total operating expenses for the three months ended September 30, 2025, were $380.1 million, up 5.8% from $359.1 million in the same period in 2024[182]. - Research and development expenses increased by 4.4% to $28.2 million for the three months ended September 30, 2025, focusing on new product development and technological innovations[184]. - Interest expense decreased by $4.8 million and $19.4 million for the three months and six months ended September 30, 2025, respectively, compared to the same periods in 2024, primarily due to a lower principal amount of debt outstanding[189]. - Non-operating expenses, net decreased by $12.1 million to $12.7 million for the three months ended September 30, 2025, and by $8.2 million to $26.8 million for the six months ended September 30, 2025, compared to the same periods in 2024[188]. - Income tax expense increased by $17.1 million (39.3%) to $60.6 million for the three months ended September 30, 2025, and by $35.7 million (45.3%) to $114.5 million for the six months ended September 30, 2025, compared to the same periods in 2024[190]. - The effective income tax rate increased to 23.9% for the three months ended September 30, 2025, and to 23.6% for the six months ended September 30, 2025, compared to 22.3% and 21.3% for the same periods in 2024, respectively[191]. Acquisitions and Restructuring - The company completed a tuck-in acquisition for approximately $15.0 million during the first six months of fiscal 2026[152]. - Acquisition and integration expenses totaled $1.3 million for the three months ended September 30, 2025[153]. - The restructuring plan is expected to improve income from operations by approximately $25.0 million per year starting in fiscal 2026[185]. Backlog and Future Outlook - The Healthcare segment's backlog increased to $427.5 million at September 30, 2025, from $405.3 million at September 30, 2024[201]. - The Life Sciences backlog increased to $113.7 million at September 30, 2025, from $75.6 million at September 30, 2024, primarily due to an increase in orders[204]. - Forward-looking statements indicate potential risks including operating costs, integration of acquired businesses, and changes in tax laws that could affect future performance[229]. - The company does not undertake to update forward-looking statements unless legally required, indicating a cautious approach to future projections[230]. Legal and Financial Instruments - The company is involved in various legal proceedings and claims, which may impact financial results but are not expected to have a material adverse effect overall[226][227]. - The company held net foreign currency forward contracts to buy €8.5 million and to sell A$9.0 million and NZ$8.0 million as of September 30, 2025[234]. - Commodity swap contracts were in place to buy 0.3 million pounds of nickel, indicating hedging against raw material price fluctuations[235]. Current Assets and Liabilities - Total current assets increased to $21,597.1 million from $20,762.0 million as of March 31, 2025[224]. - Total current liabilities increased to $25,126.7 million from $23,891.0 million, reflecting higher payables[224]. - Goodwill rose significantly to $610.5 million from $297.2 million, indicating potential acquisitions or increased valuations[224].

Core Insights - STERIS reported strong Q3 2025 results, with revenues increasing nearly 10% year-over-year to $1.46 billion and adjusted earnings per share rising by 15.4% to $2.47, both exceeding analyst expectations [1] - The company raised its full-year financial outlook, projecting adjusted earnings per share in the range of $10.15 to $10.30 [1] Market Reaction - STERIS shares jumped 8.6% in the morning session, indicating that the market views the news as significant, despite the stock's historical low volatility with only four moves greater than 5% in the past year [3] - The stock has increased by 29.6% since the beginning of the year, reaching a new 52-week high at $262.29 per share [5] Industry Context - A recent national security investigation by the U.S. Commerce Department into medical equipment and devices has raised concerns about potential tariffs, which could impact the industry significantly [4] - The investigation aims to determine if imports of medical items pose a national security risk, potentially leading to new import duties that could affect supply chains and costs for major manufacturers [4]

Financial Data and Key Metrics Changes - Total as-reported revenue grew 10% in the second quarter, with constant currency organic revenue growth of 9% driven by volume and a 210 basis points price increase [4] - Gross margin increased by 60 basis points to 44.3%, while EBIT margin rose 90 basis points to 23.1% of revenue, primarily due to operating expense leverage [4] - Adjusted earnings per diluted share from continuing operations were $2.47, reflecting a 15% increase year-over-year [5] - Free cash flow for the first half of fiscal 2026 was $527.7 million, indicating strong performance driven by increased earnings and improvements in working capital [6] Business Line Data and Key Metrics Changes - In the healthcare segment, constant currency organic revenue grew 9%, with services growing 13% and consumables increasing by 10% [7] - For AST, constant currency organic revenue grew 7%, with services up 13% but capital equipment revenue anticipated to decline [8] - Life sciences saw a 12% increase in constant currency organic revenue, driven by a 39% growth in capital equipment shipments [8] Market Data and Key Metrics Changes - The healthcare capital equipment backlog exceeded $400 million, with orders up 3% year-to-date [7] - Capital equipment backlog in life sciences increased over 50% to $114 million [8] Company Strategy and Development Direction - The company is increasing its revenue growth outlook to approximately 8%-9% for fiscal 2026, with constant currency organic revenue growth now expected to be 7%-8% [9] - The earnings outlook has been revised to a range of $10.15-$10.30, with EBIT margins expected to improve by 10-20 basis points [10] - Free cash flow outlook has been increased by $30 million to $850 million for fiscal 2026, indicating confidence in meeting revised expectations [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining growth trends, particularly in services, driven by stable volumes from medtech customers and recovery in bioprocessing [14] - The company acknowledged headwinds from tariffs and inflation, estimating a 90 basis point impact from tariffs and 130 basis points from material and labor inflation on margins [17] - Management noted that while there is some noise in customer volume due to manufacturing location shifts, the overall global footprint remains strong [14] Other Important Information - The company highlighted that the strong first half cash flow was due to improved working capital and faster collections [32] - Management indicated that the expansion of capacity in AST is a long-term process, taking two to three years from decision to operational status [38] Q&A Session Summary Question: What drove the second consecutive quarter of double-digit growth in AST services? - Management noted stable volume from medtech customers and recovery in bioprocessing as key drivers, with confidence in the 9%-10% outlook going forward [14] Question: Can you elaborate on the operating margins despite headwinds? - Management confirmed that tariffs and inflation were significant headwinds, with tariffs impacting margins by 90 basis points and material and labor inflation by 130 basis points [17] Question: What is the outlook for healthcare subsegments? - Management expects service growth to remain strong, with consumables performing well and capital equipment growth being a bit of a wild card due to timing [30] Question: How is the company addressing capacity constraints in AST? - Management stated that capacity expansion is a long process, with ongoing and planned expansions to meet demand [38] Question: What is the state of the single-use scopes trend? - Management indicated that while there is a place for single-use scopes, particularly small diameter ones, the bulk of the business remains with large diameter scopes [48]

Financial Data and Key Metrics Changes - Total as-reported revenue grew by 10% in the second quarter, with constant currency organic revenue increasing by 9% driven by volume and a 210 basis points price increase [4] - Gross margin increased by 60 basis points to 44.3%, while EBIT margin rose by 90 basis points to 23.1% of revenue compared to the previous year [4] - Adjusted earnings per diluted share from continuing operations were $2.47, reflecting a 15% increase year-over-year [5] - Free cash flow for the first half of fiscal 2026 was $527.7 million, indicating strong performance driven by increased earnings and improved working capital [6] Business Line Data and Key Metrics Changes - In the healthcare segment, constant currency organic revenue grew by 9%, with services growing by 13% and consumables by 10% [7] - The AST segment saw constant currency organic revenue growth of 7%, with services up by 13% but capital equipment revenue anticipated to decline [8] - Life sciences experienced a 12% increase in constant currency organic revenue, driven by a 39% growth in capital equipment shipments [8] Market Data and Key Metrics Changes - The healthcare capital equipment backlog exceeded $400 million, with orders up 3% year-to-date [7] - Capital equipment backlog in life sciences increased by over 50% to $114 million [8] Company Strategy and Development Direction - The company is increasing its revenue growth outlook to approximately 8%-9% for fiscal 2026, with constant currency organic revenue growth now expected to be 7%-8% [9] - The earnings outlook has been revised to a new range of $10.15-$10.30, with EBIT margins expected to improve by 10-20 basis points [10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the sustainability of service growth in the AST segment, citing stable volume from medtech customers and recovery in bioprocessing [14] - The company acknowledged headwinds from tariffs and inflation but noted that operating margins improved despite these challenges [15][16] - Management indicated that the healthcare service business is expected to see a slight slowdown in growth rates due to normalization of labor costs [21] Other Important Information - The company reported a pre-tax tariff impact of approximately $12 million, primarily affecting the healthcare segment [9] - Capital expenditures for the first half of fiscal 2026 totaled $180.1 million, with depreciation and amortization at $241.1 million [5] Q&A Session Summary Question: What drove the second consecutive quarter of double-digit growth in AST services? - Management noted stable volume from medtech customers and recovery in bioprocessing as key drivers, with confidence in the 9%-10% growth outlook going forward [14] Question: Can you elaborate on the operating margins despite headwinds? - Management indicated that tariffs represented a 90 basis point impact, while material and labor inflation accounted for about 130 basis points across the company [17] Question: What is the outlook for healthcare subsegments? - Management expects service growth to remain strong, with consumables performing well and capital equipment growth being a bit of a wild card due to timing [28] Question: How is the company addressing capacity constraints in AST? - Management stated that expanding capacity is a long process, taking two to three years, but they have been steadily bringing new capacity into the market [36] Question: What is the state of the single-use scopes trend? - Management acknowledged that while there is a place for single-use scopes, particularly in small-diameter applications, the bulk of their business remains in large-diameter scopes [46]

Financial Data and Key Metrics Changes - Total as-reported revenue grew by 10% in the second quarter, with constant currency organic revenue increasing by 9% driven by volume and a 210 basis points price increase [4] - Gross margin increased by 60 basis points to 44.3%, while EBIT margin rose by 90 basis points to 23.1% of revenue compared to the previous year [4] - Adjusted earnings per diluted share from continuing operations were $2.47, reflecting a 15% increase year-over-year [5] - Free cash flow for the first half of fiscal 2026 was $527.7 million, indicating strong performance driven by increased earnings and improved working capital [5] Business Line Data and Key Metrics Changes - In the healthcare segment, constant currency organic revenue grew by 9%, with services growing by 13% and consumables by 10% [6][7] - For the AST segment, constant currency organic revenue increased by 7%, with services up by 13% but capital equipment revenue anticipated to decline [8] - Life sciences saw a 12% increase in constant currency organic revenue, driven by a 39% growth in capital equipment shipments [8] Market Data and Key Metrics Changes - The healthcare capital equipment backlog exceeded $400 million, with orders up by 3% year-to-date [6] - Capital equipment backlog in life sciences increased by over 50% to $114 million [8] Company Strategy and Development Direction - The company is increasing its revenue growth outlook for fiscal 2026 to approximately 8%-9% as-reported, with constant currency organic revenue growth now expected to be 7%-8% [9] - The earnings outlook has been revised to a range of $10.15-$10.30, with EBIT margins expected to improve by 10-20 basis points [10] - The company is confident in its ability to meet revised expectations, supported by strong performance in the first half of the year [10] Management's Comments on Operating Environment and Future Outlook - Management noted that the operating margins improved despite headwinds from tariffs and inflation, with tariffs impacting margins by 90 basis points and material and labor inflation by 130 basis points [14][16] - The company expressed confidence in sustaining growth trends in services, particularly in the AST segment, due to stable volumes from medtech customers and recovery in bioprocessing [12][13] Other Important Information - Capital expenditures for the first half of fiscal 2026 totaled $180.1 million, with depreciation and amortization at $241.1 million [5] - The company ended the quarter with $1.9 billion in total debt, with a gross to EBITDA ratio of approximately 1.2 times [5] Q&A Session Summary Question: What drove the second consecutive quarter of double-digit growth in AST services? - Management attributed the growth to stable volume from medtech customers and recovery in bioprocessing, with confidence in sustaining a 9%-10% growth outlook [12][13] Question: Can you elaborate on the operating margins despite headwinds? - Management confirmed that tariffs and inflation were significant headwinds, with tariffs impacting margins by 90 basis points and inflation by 130 basis points [14][16] Question: What is the outlook for healthcare subsegments? - Management indicated that service growth is expected to remain strong, with consumables performing well and capital equipment growth dependent on shipment timing [27] Question: How is the company addressing capacity constraints in AST? - Management stated that expanding capacity is a long process, with several expansions completed and planned, ensuring a good position in most geographies [36] Question: What is the state of single-use scopes in healthcare? - Management noted that while there is a place for single-use scopes, particularly small diameter scopes, the bulk of the business remains with large diameter scopes due to their robustness and cost-effectiveness [46]