Core Insights - STERIS plc's service revenues are a key driver of growth in its Applied Sterilization Technologies (AST) segment, while macroeconomic challenges and currency fluctuations pose risks to its stock performance [1][9]. Group 1: Financial Performance - Over the past year, STERIS shares have increased by 26.2%, outperforming the industry growth of 4.2% and the S&P 500's rise of 18.5% [2]. - The company has a market capitalization of $21.75 billion and an earnings yield of 3.9%, compared to the industry's negative 4.9% [2]. - In the fiscal second quarter, the AST division saw a 10% year-over-year growth, driven by a 13% increase in service revenues [5]. - The Healthcare segment reported a 9% revenue growth year-over-year, with consumable revenues up 10% and capital equipment revenues up 4% [7]. Group 2: Segment Analysis - The AST segment offers a wide range of sterilization modalities through over 50 facilities globally, with a strong focus on ethylene oxide sterilization for single-use technologies in vaccine and biopharmaceutical manufacturing [4]. - The Healthcare segment benefits from the adoption of infection prevention consumables and capital equipment, with service revenues increasing by 13% year-over-year [6][7]. Group 3: Challenges and Concerns - Approximately 30% of STERIS's revenues are generated outside the U.S., making the company vulnerable to foreign currency exchange rate fluctuations [8]. - The current macroeconomic environment has led to a 6.2% increase in selling, general, and administrative expenses year-over-year, and a 4.4% rise in research and development expenses [10]. - Increased operating expenses may impact profitability if they do not lead to competitive product development [10].

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]

Core Insights - STERIS plc reported a strong second-quarter fiscal 2026 performance with adjusted earnings per share (EPS) of $2.47, reflecting a 15.4% increase year-over-year and exceeding the Zacks Consensus Estimate by 3.8% [1][9] - The company's total revenues reached $1.46 billion, marking a 9.8% year-over-year growth and surpassing estimates by 2.3% [2][9] - All business segments demonstrated growth, contributing to the overall positive financial results [13] Revenue Breakdown - Healthcare segment revenues increased by 9% year-over-year to $1.03 billion, driven by a 13% rise in service revenues, 10% in consumable revenues, and 4% in capital equipment revenues [3] - Applied Sterilization Technologies (AST) revenues improved by 10% to $281.5 million, with service revenues growing by 13% despite a significant decline in capital equipment revenues [4] - Life Sciences segment revenues rose by 13% to $145 million, supported by a 39% increase in capital equipment revenues [5] Margin Analysis - Gross profit for the quarter was $645.9 million, up 11.6% from the previous year, with a gross margin expansion of 68 basis points to 44.2% [6] - Selling, general and administrative expenses rose by 6.2% to $349.7 million, while research and development expenses increased by 4.4% to $28.2 million [7] - Adjusted operating margin improved by 161 basis points to 18.3% [7] Financial Position - STERIS ended the quarter with cash and cash equivalents of $319.2 million, an increase from $279.7 million at the end of the previous quarter [10] - Cumulative net cash from operating activities reached $707.8 million, up from $554.5 million in the same period last year [10] Guidance and Outlook - The company raised its fiscal 2026 EPS guidance to a range of $10.15-$10.30, up from the previous estimate of $9.90-$10.15 [12] - STERIS expects organic revenue growth of approximately 8-9% for fiscal 2026, with constant currency organic revenues projected to improve by 7-8% [11]