Company Overview - STERIS plc is valued at a market cap of $24.4 billion and is a leading global provider of infection prevention, decontamination, and surgical products and services, primarily serving the healthcare, pharmaceutical, and research industries [1] - The company is headquartered in Dublin, Ireland, and has been operational since 1985, supporting hospitals, laboratories, and pharmaceutical companies with sterilization and surgical solutions [1] Market Position - STERIS is classified as a "large-cap" stock, with a strong base of recurring revenues from consumables, service contracts, and equipment maintenance, providing stability and resilience [2] - The company has a global presence in over 100 countries and maintains a durable competitive edge in highly regulated and growing healthcare markets [2] Stock Performance - STERIS shares recently reached a 52-week high of $253 on September 12, with a 2.8% increase over the past three months, outperforming the iShares U.S. Medical Devices (IHI), which saw a 1.2% dip [3] - Year-to-date, STE shares have gained 20.6%, significantly outpacing IHI's 3.4% increase, and have returned 18% over the past 52 weeks compared to IHI's marginal increase [4] Financial Performance - On August 6, STERIS reported strong Q1 FY2026 results, with revenue rising 9% to $1.39 billion and adjusted EPS improving 15% to $2.34, driven by strength across segments, particularly Applied Sterilization Technologies and Healthcare [5] - The company benefited from margin expansion, firm pricing, and operational efficiencies, leading management to raise its full-year revenue growth outlook to 8–9% from a previous 6–7% and increase its free cash flow forecast to $820 million [5] Competitive Landscape - In contrast, key rival AdaptHealth Corp. (AHCO) has underperformed, with its stock decreasing by 19.3% over the past 52 weeks and a decline of 3.2% year-to-date [6]

Group 1 - STERIS plc (NYSE: STE) reported Q1 FY'26 financial results in the first week of August, highlighting several high-quality takeaways [1] - The business has shown continued growth since the last publication in September 2023, indicating a stable operational performance [1] Group 2 - The company focuses on fundamental value drivers of business economics to identify high-probability long-term investment opportunities [1] - STERIS engages with a diverse range of partners across financial markets, including speculators, hedgers, and long-term traders [1]

Core Insights - Zacks Premium provides various tools for investors to enhance their stock market strategies and confidence [1] - The Zacks Style Scores are designed to help investors select stocks with the highest potential to outperform the market in the short term [2] Zacks Style Scores Overview - The Style Scores categorize stocks based on value, growth, and momentum characteristics, assigning ratings from A to F [3] - Value Score focuses on identifying undervalued stocks using financial ratios like P/E and Price/Sales [4] - Growth Score emphasizes a company's financial health and future growth potential based on earnings and cash flow [5] - Momentum Score identifies trends in stock prices and earnings estimates to optimize entry points for investments [6] - VGM Score combines the three Style Scores to highlight stocks with the best overall characteristics [6] Zacks Rank and Style Scores Interaction - The Zacks Rank is a proprietary model that uses earnings estimate revisions to guide investors in stock selection [7] - Stocks rated 1 (Strong Buy) have historically outperformed the S&P 500, achieving an average annual return of +23.75% since 1988 [7] - Investors are encouraged to select stocks with a Zacks Rank of 1 or 2 and Style Scores of A or B for optimal success [9] - The direction of earnings estimate revisions is crucial; stocks with lower ranks but high Style Scores may still face downward price pressure [10] Company Spotlight: Steris plc - Steris plc specializes in infection prevention and surgical support products, having rebranded after acquiring Synergy Health plc in 2015 [11] - Currently rated 3 (Hold) with a VGM Score of A, Steris is positioned as a potential growth investment [11] - The company forecasts a year-over-year earnings growth of 9.8% for the current fiscal year, supported by positive earnings estimate revisions [12] - Steris has an average earnings surprise of +2%, indicating strong performance relative to expectations [12]

Core Insights - Steris (STE) reported total revenue of $1.39 billion for the quarter ending June 2025, reflecting an increase of 8.7% [4] - The company's international revenue performance is crucial for assessing its financial resilience and growth prospects [2][9] International Revenue Breakdown - Revenue from Ireland was $22.5 million, accounting for 1.6% of total revenue, which was a surprise decline of -5.3% compared to expectations [5] - Other Foreign Revenues generated $342.9 million, constituting 24.7% of total revenue, also showing a surprise decline of -5.17% from projections [6] - The expected contributions from Ireland and Other Foreign Revenues for the ongoing fiscal quarter are projected to be $24.49 million (1.7%) and $400.87 million (28.4%), respectively [7] Full Year Projections - For the full fiscal year, total revenue is expected to reach $5.83 billion, an increase of 6.8% from the previous year [8] - The anticipated contributions from Ireland and Other Foreign Revenues for the full year are $126.76 million (2.2%) and $1.57 billion (26.9%), respectively [8] Market Context - The company's international market presence provides opportunities to mitigate domestic economic challenges while engaging with rapidly evolving economies [3] - Analysts closely monitor international revenue trends to adjust earnings forecasts, reflecting the importance of global market dynamics [10]

Part I—Financial Information [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) STERIS reported Q1 FY2026 revenues of **$1,391.1 million**, an **8.7%** increase, with net income of **$177.4 million** and **$420.0 million** in operating cash flow [Note 1: Nature of Operations and Accounting Policies](index=8&type=section&id=Note%201.%20Nature%20of%20Operations%20and%20Summary%20of%20Significant%20Accounting%20Policies) STERIS operates in Healthcare, AST, and Life Sciences segments; the Dental segment was divested and is now discontinued operations - The company operates in three reportable business segments: Healthcare, Applied Sterilization Technologies (AST), and Life Sciences[23](index=23&type=chunk) - The Dental segment was divested and its results are now presented as discontinued operations, with historical information retrospectively adjusted[23](index=23&type=chunk)[28](index=28&type=chunk)[32](index=32&type=chunk) - As of June 30, 2025, the company had remaining performance obligations of approximately **$1,824.0 million**, with about **53%** expected to be recognized as revenue within one year[36](index=36&type=chunk) [Note 2: Restructuring](index=11&type=section&id=Note%202.%20Restructuring) STERIS initiated a restructuring plan in May 2024, recording **$1.8 million** in Q1 FY2026 expenses, down from **$28.1 million** prior year - A targeted restructuring plan was adopted in May 2024, which included a strategic shift in the European Healthcare surgical business and eliminated approximately **300 positions**[39](index=39&type=chunk) Restructuring Expenses (Q1 FY2026 vs Q1 FY2025) | Expense Category | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Severance and other compensation | $1.7 M | $21.5 M | | Lease and other contract termination | $0.0 M | $3.0 M | | Product rationalization | $0.0 M | $2.4 M | | Accelerated depreciation | $0.1 M | $1.3 M | | **Total Restructuring Expense** | **$1.8 M** | **$28.1 M** | [Note 3: Business Acquisitions and Divestitures](index=12&type=section&id=Note%203.%20Business%20Acquisitions%20and%20Divestitures) STERIS completed a **$15.0 million** Healthcare acquisition in Q1 FY2026 and divested its Dental segment and Controlled Environment Certification Services business - Completed a tuck-in acquisition in the Healthcare segment for approximately **$15.0 million** during Q1 FY2026[44](index=44&type=chunk) - On May 31, 2024, the company closed the sale of its Dental segment for cash consideration of **$787.5 million**, plus potential contingent payments. The results are presented as discontinued operations[47](index=47&type=chunk)[49](index=49&type=chunk) - Completed the sale of the Controlled Environment Certification Services business on April 1, 2024, recognizing a pre-tax gain of **$18.8 million** in Q1 FY2025[47](index=47&type=chunk) [Note 4: Discontinued Operations](index=14&type=section&id=Note%204.%20Discontinued%20Operations) The divested Dental segment, now a discontinued operation, generated **$63.9 million** revenue and **$5.6 million** net income in Q1 FY2025 Dental Segment Discontinued Operations (Three Months Ended June 30, 2024) | Metric | Amount (Millions) | | :--- | :--- | | Revenues | $63.9 M | | Gross Profit | $28.8 M | | Income from Operations | $15.0 M | | Pre-tax loss on sale | $(7.8) M | | **Income from discontinued operations, net of tax** | **$5.6 M** | [Note 7: Debt](index=15&type=section&id=Note%207.%20Debt) Total debt decreased to **$1,903.1 million** by June 30, 2025, primarily due to **$125.0 million** in note repayments Total Debt Composition | Debt Category | June 30, 2025 (Millions) | March 31, 2025 (Millions) | | :--- | :--- | :--- | | Short-term debt | $0.0 M | $125.0 M | | Long-term debt | $1,903.1 M | $1,918.7 M | | **Total debt** | **$1,903.1 M** | **$2,043.7 M** | [Note 9: Income Taxes](index=17&type=section&id=Note%209.%20Income%20Taxes) Q1 FY2026 effective tax rate rose to **23.3%** from **20.1%** due to profit mix and discrete items, with OBBBA impact under assessment - The effective tax rate for Q1 FY2026 was **23.3%**, compared to **20.1%** for Q1 FY2025, with the increase driven by geographic profit mix and discrete items[65](index=65&type=chunk) - The U.S. enacted the One Big Beautiful Bill Act (OBBBA) on July 4, 2025, which contains substantial tax policy changes. The company is currently assessing its impact[63](index=63&type=chunk) [Note 10: Commitments and Contingencies](index=18&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) STERIS settled substantially all Illinois Ethylene Oxide litigation claims for up to **$48.2 million**, with remaining liability in accrued expenses - Entered into settlement agreements to resolve substantially all Illinois EO litigation claims for up to **$48.2 million**. The remaining liability is recorded in 'Accrued expenses and other'[77](index=77&type=chunk)[78](index=78&type=chunk) [Note 11: Business Segment Information](index=19&type=section&id=Note%2011.%20Business%20Segment%20Information) All three segments, Healthcare, AST, and Life Sciences, reported revenue growth in Q1 FY2026, with AST leading at **12.6%** Segment Revenues (Q1 FY2026 vs Q1 FY2025) | Segment | Q1 2025 Revenues (Millions) | Q1 2024 Revenues (Millions) | YoY Change | | :--- | :--- | :--- | :--- | | Healthcare | $974.7 M | $901.2 M | +8.2% | | AST | $281.2 M | $249.8 M | +12.6% | | Life Sciences | $135.2 M | $128.5 M | +5.2% | | **Total** | **$1,391.1 M** | **$1,279.5 M** | **+8.7%** | Segment Income from Operations Before Adjustments (Q1 FY2026 vs Q1 FY2025) | Segment | Q1 2025 Income (Millions) | Q1 2024 Income (Millions) | | :--- | :--- | :--- | | Healthcare | $235.5 M | $216.9 M | | AST | $136.7 M | $117.7 M | | Life Sciences | $58.7 M | $52.6 M | Revenues by Type (Q1 FY2026 vs Q1 FY2025) | Revenue Type | Q1 2025 (Millions) | Q1 2024 (Millions) | | :--- | :--- | :--- | | Capital equipment | $255.5 M | $242.2 M | | Consumables | $435.0 M | $414.1 M | | Service | $700.6 M | $623.2 M | | **Total Revenues** | **$1,391.1 M** | **$1,279.5 M** | [Note 13: Share Repurchases](index=23&type=section&id=Note%2013.%20Repurchases%20of%20Ordinary%20Shares) As of June 30, 2025, **$300.0 million** remained available under the share repurchase program, with no program repurchases in Q1 FY2026 - As of June 30, 2025, **$300.0 million** remained available under the Board-authorized share repurchase program[99](index=99&type=chunk) - No shares were repurchased under the program during the first three months of fiscal 2026. However, **0.1 million shares** were obtained for **$10.6 million** in connection with share-based compensation programs[101](index=101&type=chunk)[102](index=102&type=chunk) Consolidated Statement of Income Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | YoY Change | | :--- | :--- | :--- | :--- | | **Total Revenues** | $1,391.1 M | $1,279.5 M | +8.7% | | **Gross Profit** | $628.0 M | $572.4 M | +9.7% | | **Income from Operations** | $246.0 M | $185.5 M | +32.6% | | **Net Income Attributable to Shareholders** | $177.4 M | $145.4 M | +22.0% | | **Diluted EPS (Total)** | $1.79 | $1.46 | +22.6% | | **Cash Dividends per Share** | $0.57 | $0.52 | +9.6% | Consolidated Balance Sheet Highlights (as of June 30, 2025) | Metric | June 30, 2025 (Millions) | March 31, 2025 (Millions) | | :--- | :--- | :--- | | **Total Assets** | $10,405.0 M | $10,146.8 M | | Cash and cash equivalents | $279.7 M | $171.7 M | | Goodwill | $4,223.1 M | $4,095.7 M | | **Total Liabilities** | $3,435.1 M | $3,531.0 M | | Total Debt (Short & Long-term) | $1,903.1 M | $2,043.7 M | | **Total Equity** | $6,969.9 M | $6,615.8 M | Consolidated Cash Flow Highlights (Q1 FY2026 vs Q1 FY2025) | Metric | Three Months Ended June 30, 2025 (Millions) | Three Months Ended June 30, 2024 (Millions) | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $420.0 M | $303.7 M | | Net cash (used in) provided by investing activities | $(108.5) M | $687.8 M | | Net cash used in financing activities | $(213.1) M | $(998.9) M | | **Increase (decrease) in cash** | $108.0 M | $(8.7) M | [Management's Discussion and Analysis (MD&A)](index=30&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Q1 FY2026 revenue grew **8.7%** due to volume and pricing, gross profit margin improved to **45.1%**, and free cash flow increased to **$326.5 million** [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Q1 FY2026 total revenues increased **8.7%** to **$1,391.1 million**, with gross profit margin expanding to **45.1%** and operating income rising **32.6%** Revenue Growth by Type and Geography (Q1 FY2026) | Category | YoY Change | | :--- | :--- | | **By Type** | | | Service revenues | +12.4% | | Consumable revenues | +5.0% | | Capital equipment revenues | +5.5% | | **By Geography** | | | United States | +8.3% | | Other foreign | +10.5% | - Gross profit margin increased to **45.1%** from **44.7%** due to favorable pricing (**+130 bps**) and productivity (**+70 bps**), partially offset by inflation (**-80 bps**) and tariff costs (**-70 bps**)[165](index=165&type=chunk) - Total operating expenses decreased by **1.3%**, mainly because restructuring expenses fell to **$1.8 million** from **$25.7 million** in the prior-year quarter[166](index=166&type=chunk) - Interest expense decreased by **$14.5 million** YoY due to lower outstanding debt principal[171](index=171&type=chunk)[172](index=172&type=chunk) [Business Segment Results](index=36&type=section&id=Business%20Segment%20Results%20of%20Operations) All segments reported revenue growth in Q1 FY2026, with AST leading at **12.6%** and achieving the highest operating margin of **48.6%** Segment Performance (Q1 FY2026) | Segment | Revenue Growth (As Reported) | Constant Currency Organic Growth | Operating Margin | | :--- | :--- | :--- | :--- | | Healthcare | 8.2% | 7.6% | 24.2% | | AST | 12.6% | 10.2% | 48.6% | | Life Sciences | 5.2% | 4.2% | 43.5% | - The Healthcare segment's backlog increased to **$403.5 million** from **$362.0 million** a year ago[186](index=186&type=chunk) - The Life Sciences segment's backlog grew significantly to **$111.0 million** from **$72.2 million** a year ago[189](index=189&type=chunk) [Liquidity and Capital Resources](index=39&type=section&id=Liquidity%20and%20Capital%20Resources) Q1 FY2026 operating cash flow increased to **$420.0 million**, free cash flow rose to **$326.5 million**, and the debt-to-total capital ratio improved to **21.5%** Key Liquidity Metrics | Metric | Q1 FY2026 (Millions) | Q1 FY2025 (Millions) | | :--- | :--- | :--- | | Net cash from operating activities | $420.0 M | $303.7 M | | Free cash flow | $326.5 M | $195.7 M | | Debt-to-total capital ratio (end of period) | 21.5% | 26.7% | - Financing activities included a **$125.0 million** repayment of Private Placement Senior Notes and **$56.2 million** in cash dividends paid to shareholders[196](index=196&type=chunk)[203](index=203&type=chunk) [Market Risk Disclosures](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) Market risk exposures, including interest rate, currency, and commodity risks, remained materially unchanged since March 31, 2025 - Exposures to market risks have not changed materially since the fiscal year-end (March 31, 2025)[217](index=217&type=chunk) - As of June 30, 2025, the company held foreign currency forward contracts to manage currency risk and commodity swap contracts to hedge the price of **0.4 million pounds** of nickel[219](index=219&type=chunk)[220](index=220&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[221](index=221&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[222](index=222&type=chunk) Part II—Other Information [Legal Proceedings](index=45&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings information, including the Illinois Ethylene Oxide litigation settlement, is detailed in Note 10 of the financial statements - Information on legal proceedings is provided in Note 10 to the consolidated financial statements, titled "Commitments and Contingencies"[225](index=225&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the Annual Report on Form 10-K for the fiscal year ended March 31, 2025 - The company's risk factors are detailed in its Annual Report on Form 10-K for the fiscal year ended March 31, 2025[226](index=226&type=chunk) [Issuer Purchases of Equity Securities](index=46&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%2C%20Use%20or%20Proceeds%2C%20and%20Issuer%20Purchases%20of%20Equity%20Securities) As of June 30, 2025, **$300.0 million** remained for share repurchases, with no program repurchases in Q1 FY2026, though shares were obtained for compensation - The company's share repurchase program, authorized on May 3, 2023, has **$300.0 million** remaining as of June 30, 2025[227](index=227&type=chunk) - No shares were repurchased under the publicly announced plan during the first quarter of fiscal 2026[228](index=228&type=chunk)[229](index=229&type=chunk)

Financial Data and Key Metrics Changes - Total reported revenue grew by 9% in the first quarter, with constant currency organic revenue increasing by 8% driven by volume and a 230 basis point price increase [7][9] - Gross margin increased by 20 basis points to 45.3%, while EBIT margin rose by 50 basis points to 22.8% of revenue compared to the previous year [8][9] - Adjusted earnings per diluted share improved by 15% to $2.34, with net income from continuing operations at $231.2 million [9][10] - Free cash flow for the fiscal year 2026 was reported at $327 million, with an increase in outlook for free cash flow raised to $820 million [10][18] Business Line Data and Key Metrics Changes - In the Healthcare segment, constant currency organic revenue grew by 8%, with capital equipment revenue increasing by 6% and service revenue growing by 13% [14] - The AST segment saw a 10% growth in constant currency organic revenue, with services growing by 12% and EBIT margins increasing by 150 basis points to 48.6% [15] - Life Sciences group reported a 4% increase in constant currency organic revenue, driven by an 8% growth in consumables [16] Market Data and Key Metrics Changes - The backlog for Healthcare capital equipment was reported at over $400 million, indicating strong underlying order growth of 14% [14] - Life Sciences backlog increased by over 50% to $111 million, reflecting a recovery in capital orders after a previous slowdown [16][30] Company Strategy and Development Direction - The company is focused on maintaining consistent dividend growth, announcing a 10% increase to $0.63 per quarter [10] - Management emphasized the importance of strategic oversight and financial leadership during the CFO transition, indicating a commitment to continued growth and stability [11][13] - The company is actively pursuing M&A opportunities while also considering stock buybacks to offset dilution [44][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong order growth and backlog, indicating a positive outlook for revenue despite potential challenges in the healthcare payment landscape [42][61] - The company updated its revenue growth outlook to approximately 8% to 9%, reflecting favorable currency impacts, while maintaining a constant currency organic revenue growth forecast of 6% to 7% [17][18] - Management acknowledged the complexities in the bioprocessing market but noted a return to normal volume trajectories [28][30] Other Important Information - The company is experiencing increased costs related to employee healthcare benefits due to higher utilization rates [38] - The effective tax rate for the quarter was reported at 23.5%, with no anticipated changes [18] Q&A Session Summary Question: Revised tariff estimate details - The increase in tariff expectations was driven by higher tariffs on metals and changes in EU tariffs [22] Question: Maintaining organic expectations for AST - The conservative outlook is due to potential fluctuations in manufacturing positions from customers [24] Question: Update on bioprocessing market - Recent volumes have been consistent, indicating a return to normal trajectories [28] Question: Life Sciences segment backlog increase - The increase is attributed to a recovery from previous capital order slowdowns [30] Question: Comments on low temp sterilization market - The company has not seen a slowdown and feels confident in its market position [35] Question: Employee healthcare costs - Increased costs are primarily due to higher utilization of employee healthcare benefits [38] Question: Capital demand environment and order growth - Strong orders in both healthcare and life sciences sectors contribute to confidence in revenue guidance [42] Question: Future cash allocation strategies - The company remains open to M&A opportunities while also considering stock buybacks [44][46] Question: Impact of regulatory changes on EO facilities - The company did not apply for regulatory relief as it has already met compliance standards [56] Question: Hospital outlook and OB3 impact - Management views the situation as a payment reimbursement issue rather than a demand issue [61] Question: FX impact on profitability - The company is largely operationally hedged against FX impacts [63]

Financial Data and Key Metrics Changes - Total reported revenue grew by 9% in the first quarter, with constant currency organic revenue increasing by 8% driven by volume and a 30 basis points price increase [6][7] - Gross margin increased by 20 basis points to 45.3%, while EBIT margin rose by 50 basis points to 22.8% of revenue compared to the previous year [7] - Net income from continuing operations was $231.2 million, and adjusted earnings per diluted share improved by 15% to $2.34 [7][8] - Free cash flow for the fiscal year 2026 was reported at $327 million, with a strong start driven by increased earnings and improvements in working capital [8] Business Line Data and Key Metrics Changes - In the Healthcare segment, constant currency organic revenue grew by 8%, with capital equipment revenue increasing by 6% and service revenue growing by 13% [13] - The AST segment saw a 10% growth in constant currency organic revenue, with services growing by 12% and EBIT margins increasing by 150 basis points to 48.6% [14] - Life Sciences group experienced a 4% increase in constant currency organic revenue, driven by an 8% growth in consumables [15] Market Data and Key Metrics Changes - The company reported a backlog of over $400 million in Healthcare capital equipment, indicating strong underlying order growth of 14% [13] - Life Sciences backlog increased by over 50% to $111 million, reflecting a recovery in capital orders after a previous slowdown [15] Company Strategy and Development Direction - The company is focused on maintaining consistent dividend growth, announcing a 10% increase to $0.63 per quarter [8] - Management emphasized the importance of strategic oversight and financial leadership during the CFO transition, indicating confidence in the company's future direction [10][12] - The company is actively pursuing M&A opportunities while also considering stock buybacks to offset dilution [43][46] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the strong order growth and backlog, indicating a positive outlook for revenue guidance despite external challenges [41] - The company updated its revenue growth outlook to approximately 8% to 9%, reflecting favorable currency impacts, while maintaining a constant currency organic revenue growth forecast of 6% to 7% [16] - Management acknowledged the challenges posed by increased tariffs and healthcare costs but remained optimistic about the overall demand in the healthcare sector [17][36] Other Important Information - The company has a strong cash position, with plans to continue building cash reserves while managing debt effectively [46] - The effective tax rate for the quarter was reported at 23.5%, with no anticipated changes [17] Q&A Session Summary Question: Revised tariff estimate details - The increase in tariff expectations was driven by higher tariffs on metals and changes in EU tariffs, leading to an overall increase in tariff exposure [22] Question: Maintaining organic growth expectations for AST - Management indicated that the decision to maintain the 6% to 7% organic growth expectation is based on conservatism despite a strong start [24] Question: Update on bioprocessing market - The bioprocessing market has shown consistent volume over the last few months, indicating a return to normal trajectory [28] Question: Life Sciences segment backlog increase - The increase in backlog is attributed to a recovery in capital orders following a previous slowdown, with strong order intake expected [30] Question: Competitive landscape regarding low temp sterilization - Management expressed confidence in their position and did not observe any slowdown in their operations despite competitor concerns [34] Question: Employee healthcare benefit costs - The increase in costs is primarily due to higher utilization of employee healthcare benefits, with premiums increasing slightly [37] Question: Capital demand environment and order growth - Strong orders in both Healthcare and Life Sciences sectors contribute positively to revenue guidance, with no observed slowdown [41] Question: M&A activity and cash allocation - The company remains active in M&A discussions and plans to continue building cash reserves while considering stock buybacks [43][46] Question: Impact of regulatory changes on EO facilities - The company did not apply for regulatory relief as they are already compliant, and the competitive impact is expected to be minimal [56] Question: Hospital outlook and OB3 impact - Management views the challenges as payment reimbursement issues rather than demand issues, with no observed pullback in procedure volumes [63] Question: FX impact on profitability - The company is largely operationally hedged against FX impacts, with minimal effects on profitability [66] Question: ASC build-out in the US - The relocation of procedures to ASCs is seen as beneficial for capital business, requiring proper training and compliance programs [72]

Core Insights - STERIS plc (STE) reported first-quarter fiscal 2026 adjusted earnings per share (EPS) of $2.34, reflecting a 15.3% increase year-over-year and surpassing the Zacks Consensus Estimate by 0.9% [1][10] - The company's GAAP EPS was $1.79, marking a 27% increase from the previous year's $1.41 [1] Revenue Performance - Total revenues from continuing operations reached $1.39 billion, an 8.6% year-over-year increase, although this figure missed the Zacks Consensus Estimate by 2.4% [3][10] - Organic revenues at constant exchange rate (CER) rose by 8% year-over-year [3] Segment Analysis - **Healthcare Segment**: Revenues increased by 8% year-over-year to $974.7 million, driven by a 5% rise in consumable revenues, a 13% increase in service revenues, and a 6% improvement in capital equipment revenues [4] - **Applied Sterilization Technologies (AST)**: Revenues improved by 13% to $281.2 million, with service revenues growing by 12% and capital equipment revenues surging by 46% [5] - **Life Sciences Segment**: Revenues increased by 5% to $135.2 million, supported by an 8% rise in consumable revenues [6] Margin and Expense Analysis - Gross profit for the quarter was $628 million, up 9.7% year-over-year, with a gross margin expansion of 41 basis points to 45.1% despite a 7.9% increase in the cost of revenues [7] - Selling, general and administrative expenses rose by 5.4% to $353.8 million, while research and development expenses increased by 3.1% to $26.4 million [8] Financial Position - Cash and cash equivalents at the end of the first quarter stood at $279.7 million, up from $171.7 million at the end of fiscal 2025 [11] - Net cash flow from operating activities was $420 million compared to $303.7 million in the previous year [12] Guidance - STERIS raised its fiscal 2026 revenue growth guidance to 8-9%, up from the previous 6-7% projection, with an adjusted EPS forecast of $9.90-$10.15 [10][13] - The Zacks Consensus Estimate for revenues is pegged at $5.83 billion, indicating a 6.8% growth from fiscal 2025 [13] Overall Assessment - The company ended the first quarter of fiscal 2026 positively, with both earnings and revenues exceeding estimates across all business segments [14]

Core Insights - Steris reported Q1 FY2026 earnings, showing solid year-over-year growth but falling short of analyst expectations for both revenue and adjusted EPS [1][2] - Revenue (GAAP) was $1,391.1 million, below the estimate of $1,447.8 million, while adjusted EPS was $2.34 compared to the consensus estimate of $2.47 [1][2] - Increased tariffs and higher employee benefit costs offset foreign currency gains, leading to an unchanged adjusted earnings outlook despite a raised revenue forecast [1][9] Financial Performance - Non-GAAP EPS for Q1 FY26 was $2.34, a 15.3% increase from $2.03 in Q1 FY25 [2] - GAAP revenue increased by 8.7% year-over-year, from $1,279.5 million in Q1 FY25 to $1,391.1 million [2] - Free cash flow (non-GAAP) rose by 66.8% to $326.5 million compared to $195.7 million in Q1 FY25 [2] Segment Performance - The Healthcare segment generated $974.7 million in revenue, an 8.2% increase from $901.2 million in Q1 FY25 [2][5] - The Applied Sterilization Technologies (AST) segment saw a 12.6% revenue increase, driven by a 12% growth in services and a 46% increase in capital equipment sales [5] - Life Sciences revenue grew by 5.2%, supported by a 53.8% rise in backlog compared to Q1 FY25, indicating strong future demand [5] Operational Developments - Income from operations (GAAP) increased by 32.6% year-over-year, driven by higher pricing and operational productivity [6] - Cash flow from operations rose to $420.0 million, a 38% increase from $303.7 million in Q1 FY25 [6] - Inventory increased by $59.9 million, indicating investments for future growth [6] Strategic Focus - Steris is focusing on expanding its service business and managing global supply chain challenges [4] - The company emphasizes compliance with healthcare regulations and innovation in sterilization technologies [4] - Management raised the revenue growth forecast for FY2026 from 6-7% to 8-9%, driven by favorable foreign currency shifts [9] Cost Challenges - Tariff-related costs are projected to rise from $30 million to $45 million annually, impacting profitability [7] - Labor and employee healthcare costs continue to increase, affecting overall margins [7] - R&D expenses increased to $26.4 million, reflecting ongoing investment in future offerings [7]

Company Performance - Steris reported quarterly earnings of $2.34 per share, exceeding the Zacks Consensus Estimate of $2.32 per share, and up from $2.03 per share a year ago, representing an earnings surprise of +0.86% [1] - The company posted revenues of $1.39 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 2.36%, compared to $1.28 billion in the same quarter last year [2] - Over the last four quarters, Steris has surpassed consensus EPS estimates three times and topped consensus revenue estimates once [2] Future Outlook - The immediate price movement of Steris shares will depend on management's commentary during the earnings call and the company's earnings outlook [3][4] - The current consensus EPS estimate for the upcoming quarter is $2.39 on revenues of $1.41 billion, and for the current fiscal year, it is $10.12 on revenues of $5.83 billion [7] Industry Context - The Medical - Instruments industry, to which Steris belongs, is currently ranked in the bottom 41% of over 250 Zacks industries, indicating potential challenges ahead [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Steris's stock performance [5][6]