STERIS(US:STE)2024-11-07 20:50Financial Data and Key Metrics Changes - Total as-reported revenue grew 7% in the second quarter, with constant currency organic revenue also increasing by 7%, driven by volume and a 240 basis point price increase [6][7] - Gross margin decreased by 50 basis points to 43.7%, while EBIT margin decreased by 30 basis points to 22.2% of revenue compared to the previous year [6][7] - Net income from continuing operations was $212.2 million, and adjusted earnings per share from continuing operations were $2.14, reflecting a 15% increase over last year [7] - Free cash flow for the first half of fiscal 2025 was $344.5 million, aligning with the full-year guidance of approximately $700 million [8] Business Line Data and Key Metrics Changes - Healthcare constant currency organic revenue grew 7%, with strong recurring revenue streams, while capital equipment revenue declined by 2% due to shipment timing [10] - AST constant currency organic revenue grew 9%, with 6% growth in services, although EBIT margins were impacted by labor and energy costs [11] - Life Sciences constant currency organic revenue growth was 3%, driven by strong growth in consumables, with margins benefiting from favorable mix and pricing [12] Market Data and Key Metrics Changes - Healthcare backlog reached $405 million, with orders growing over 30% in the second quarter [10] - The Asia Pacific region, particularly Malaysia, has seen significant growth due to reshoring and front-shoring initiatives [25] Company Strategy and Development Direction - The company anticipates flat to slightly down revenue for healthcare capital equipment for fiscal 2025, while expecting mid- to high single-digit growth in healthcare recurring revenues [13] - The outlook for AST remains high single-digit revenue growth, but the company no longer expects to exit the year at double-digit growth [13] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding bioprocessing growth in the second half of the fiscal year, despite current inventory management challenges among medtech customers [19][36] - The company reiterated its full-year guidance of 6% to 7% constant currency organic revenue growth and adjusted earnings per diluted share of $9.05 to $9.25 [13] Other Important Information - The company is focused on maintaining a diversified segment performance, which continues to benefit overall results [14] - Management noted that labor and energy costs are impacting margins, with energy costs being largely uncontrollable [33] Q&A Session Summary Question: Impact of loss on large equipment sale on AST margins - The loss impacted margins by about 200 basis points, and while a loss was anticipated, it was larger than expected [17] Question: Outlook for AST and bioprocessing - Management remains optimistic about bioprocessing contributing to growth, but noted that growth is not as strong as hoped from a medtech perspective [19] Question: Updates on healthcare capital equipment - Shipment delays due to weather impacted the quarter, but the backlog remains strong [21] Question: Supply chain changes and tariffs - No significant changes reported, but there has been growth in the Asia Pacific region due to reshoring [25] Question: Trends in healthcare consumables and services - Strong growth in consumables driven by increased procedure volumes and share gains across various product lines [29] Question: M&A pipeline and share repurchase - The company is in a strong financial position for potential acquisitions but cannot comment on specific opportunities [30][31] Question: Labor and energy costs - Labor costs are lagging, while energy costs are out of the company's control, leading to margin pressures [33] Question: Bioprocessing revenue as a percentage of AST - Bioprocessing now represents about 6% to 8% of AST revenue and is projected to grow [35] Question: Legal strategy and ongoing litigation - The company refrained from discussing specific legal strategies or details regarding ongoing litigation [40][41]