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    STERIS plc (STE)

    Business Description

    STERIS is a leading global provider of products and services focused on infection prevention, supporting patient care through innovative healthcare and life science solutions. The company operates in three main business segments: Healthcare, Applied Sterilization Technologies (AST), and Life Sciences . STERIS offers a comprehensive range of products and services, including infection prevention consumables, capital equipment like sterilizers and surgical tables, and services such as equipment maintenance and instrument repair . The company has divested its Dental segment to focus on core markets in healthcare, pharma, and MedTech .

    1. Healthcare - Offers a comprehensive range of products and services for healthcare providers, including infection prevention consumables, capital equipment like sterilizers and surgical tables, and services such as equipment maintenance and instrument repair .
    2. Applied Sterilization Technologies (AST) - Provides contract sterilization and laboratory testing services for medical device and pharmaceutical manufacturers, offering a technology-neutral approach from testing through sterilization .
    3. Life Sciences - Supports biopharmaceutical and medical device research and manufacturing facilities with products like pharmaceutical detergents, sterilizers, and maintenance services .

    Q2 2025 Summary

    Initial Price$222.00June 29, 2024
    Final Price$239.05September 29, 2024
    Price Change$17.05
    % Change+7.68%

    What went well

    • Strong growth in consumables and services within the Healthcare segment, driven by increased procedure volumes, pricing, and market share gains, especially in sterile processing consumables where large contracts have been secured.
    • Optimistic outlook for bioprocessing revenue growth in the second half of the fiscal year, expected to be accretive to growth in the Applied Sterilization Technologies segment.
    • Benefiting from reshoring and front-shoring trends with significant growth in Asia-Pacific, particularly Malaysia, positioning the company well for future growth opportunities due to customers relocating operations in anticipation of potential challenges related to China.

    What went wrong

    • Labor and energy costs are pressuring margins, with increasing labor costs being a lagging issue and energy costs out of the company's control. There is a lag in passing these costs onto customers, potentially impacting near-term profitability.
    • The AST segment's outlook has been adjusted to be more conservative due to lower than expected volumes year-to-date, indicating potential slowing growth in this segment. This adjustment is based on the current run rate and trends observed.
    • The strong growth in Life Sciences consumables is against easy comparisons from last year due to destocking, suggesting that current strong demand may not be sustained and future growth rates might be lower as comparisons become tougher.

    Q&A Summary

    1. AST Margins and Outlook
      Q: Why is AST not achieving double-digit growth?
      A: AST's growth is at 6% , below expectations due to inventory management by medtech customers and mismatched procedure rates. Management doesn't expect to exit the year at double-digit growth but remains optimistic for future improvement ,.

    2. Litigation Update
      Q: Any update on ongoing EO litigation?
      A: Management declined to discuss legal strategy or details regarding the EO litigation related to the Waqigail-Illinois facility , ,. They referred to the disclosures provided in the 10-Q ,.

    3. Operating Margin Expectations
      Q: Why is operating margin expected to be flat?
      A: Due to AST not performing as expected and not exiting at double-digit growth, they won't achieve EBIT margin improvement this year. However, they remain confident in achieving long-term EBIT margin expansion annually.

    4. M&A Pipeline and Capital Allocation
      Q: Can you comment on M&A opportunities and share repurchases?
      A: Management cannot comment on the M&A pipeline but stated they have financial capacity for acquisitions. They mentioned buying back $100 million of shares in the first half of the fiscal year, reflected in the balance sheet and debt.

    5. Labor and Energy Costs
      Q: Are labor and energy costs still impacting margins?
      A: Yes, labor costs are lagging and should anniversary during the fiscal year. Energy costs are out of their control and can't be passed on immediately, causing a lag.

    6. Bioprocessing Outlook
      Q: How significant is bioprocessing in AST revenue?
      A: Bioprocessing is now about 6% to 8% of AST revenue. It is projected to grow nicely from this new level.

    7. Pricing in AST
      Q: Any adjustments or moderation in AST pricing?
      A: No pricing adjustments; the outlook change is due to year-to-date volumes and trends.

    8. Life Sciences Consumables Growth
      Q: What's driving strong consumable demand in Life Sciences?
      A: Strong recovery from core customers back in full production after last year's destocking. Consumables business, particularly in barrier products and chemistry, is showing strong growth against easier comps.

    9. Healthcare Equipment Growth Expectations
      Q: Why is healthcare equipment growth now flat to slightly down?
      A: Shipment delays due to weather-related issues like hurricanes impacted Q2 shipments. Backlog remains strong, and the impact is minor, offset by higher profit mix from consumables and services.

    10. MedTech Customer Trends
      Q: Is inventory management affecting AST growth?
      A: Yes, medtech customers are tightly managing inventory, impacting AST growth. As procedure rates align with AST growth, better performance is expected.

    11. Interest Expense Impact
      Q: How are you maintaining EPS guidance despite flat margins?
      A: Favorable impact on interest expense; now expecting about $90 million for the full year.

    12. Balance Sheet and Leverage
      Q: Any plans given the under-levered balance sheet?
      A: Management has financial capacity for acquisitions and integration. The deal pipeline is robust, focusing on smaller tuck-in acquisitions.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025Q2 2025
    Healthcare3,085.1818.9870.1916.21,007.83,613.0901.2944.2
    - Capital Equipment147.431.035.4--155.526.523.0
    - Consumables241.161.759.4--251.669.872.1
    - Service148.238.738.2--164.632.232.8
    AST914.4233.1235.1234.9250.9954.0249.8256.7
    Life Sciences536.7131.4133.1146.6160.6571.7128.5127.9
    Dental421.6101.2104.297.9----
    Product Revenue2,785.3713.9762.3--2,764.0656.3695.9
    Service Revenue2,172.5570.7580.0--2,374.7623.2633.0
    Total Revenue4,957.81,284.51,342.41,395.61,116.25,138.71,279.51,328.9
    Revenue by Geography - in Millions of USDFY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024Q4 2024FY 2024Q1 2025Q2 2025
    Ireland74.520.120.419.65122.5582.722.222.8
    United States3,586.5930.5992.91,025.458802.543,751.4946.9979.5
    Other Foreign Locations1,296.9333.9329.0350.536291.161,304.6310.4326.6
    Total Revenue4,957.81,284.51,342.41,395.6451,116.155,138.71,279.51,328.9

    Executive Team

    NamePositionStart DateShort Bio
    Karen L. BurtonVice President and Chief Accounting OfficerJanuary 2017Karen L. Burton serves as the Vice President and Chief Accounting Officer at STERIS plc. She assumed this role in January 2017. Prior to her current position, she also served as Controller from January 2017 until December 2023 .
    Daniel A. CarestioPresident and CEOJuly 2021Daniel A. Carestio has served as the President and CEO of STERIS plc since July 2021. He was previously the Senior Vice President and Chief Operating Officer from August 2018 to July 2021 .
    Mary Clare FraserSenior Vice President and Chief Human Resources OfficerMay 2022Mary Clare Fraser serves as the Senior Vice President and Chief Human Resources Officer at STERIS. She assumed this role in May 2022. She joined STERIS in July 2020 as the Vice President and Chief Human Resources Officer .
    Kenneth E. KohlerSenior Vice President and General Manager, ASTFebruary 2024Kenneth E. Kohler serves as Senior Vice President and General Manager, AST at STERIS. He assumed this role in February 2024. Previously, he was Vice President and General Manager of AST Americas from November 2015 to February 2024 .
    Julia K. MadsenSenior Vice President and General Manager, Life SciencesJuly 2020Julia K. Madsen serves as Senior Vice President and General Manager, Life Sciences at STERIS. She assumed this role in July 2020. Previously, she was Vice President and General Manager of Life Sciences, Consumables .
    Cary L. MajorsSenior Vice President and President, HealthcareAugust 2022Cary L. Majors serves as the Senior Vice President and President, Healthcare at STERIS. He assumed this role in August 2022. Previously, he was Senior Vice President, Americas Commercial Operations from August 2019 to August 2022 .
    Renato G. TamaroVice President and Corporate TreasurerAugust 2017Renato G. Tamaro serves as Vice President and Corporate Treasurer at STERIS. He assumed this role in August 2017. Previously, he served as Assistant Treasurer from March 2006 to July 2017 .
    Michael J. TokichSenior Vice President and Chief Financial OfficerAugust 2017Michael J. Tokich serves as the Senior Vice President and Chief Financial Officer at STERIS plc. He assumed this role in August 2017. Previously, he was Senior Vice President, Chief Financial Officer, and Treasurer .
    Andrew XilasSenior Vice President and General Manager, DentalJune 2021Andrew Xilas serves as Senior Vice President and General Manager, Dental at STERIS. He assumed this role in June 2021. He joined HuFriedy Group in 1987, where he held roles of increasing responsibility .
    J. Adam ZangerleSenior Vice President, General Counsel, and Company SecretaryJuly 2018J. Adam Zangerle serves as Senior Vice President, General Counsel, and Company Secretary at STERIS plc. He assumed this role in July 2018. Previously, he was Vice President, General Counsel, and Secretary .

    Questions to Ask Management

    1. With the AST segment no longer expected to exit the year at double-digit revenue growth and margins impacted by labor and energy costs, what specific strategies are you implementing to improve AST's growth trajectory and profitability in the face of these challenges?
    2. Given the anticipated flat to slightly down Healthcare capital equipment revenue for fiscal 2025 due to timing of shipments and difficult fourth quarter comparisons, how confident are you that recurring revenue outperformance can fully offset this decline, and what steps are you taking to drive capital equipment growth?
    3. The Life Sciences segment is now expected to have flat revenue for the year, with declines in capital equipment sales partially mitigated by consumables. What are the underlying factors contributing to the decline in Life Sciences capital equipment, and how do you plan to address this weakness?
    4. Labor and energy costs continue to pressure margins, particularly in AST, and you mentioned the inability to immediately pass on increased energy costs to customers. How are you planning to manage these costs, and when do you anticipate seeing margin improvement as a result?
    5. You reported a one-time loss on a capital equipment order in your med-x business unit that negatively impacted AST margins. Can you provide more details on what led to this loss and what measures you're putting in place to prevent similar issues in the future?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateMay 3, 2023
    End Date/DurationNo specified expiration date
    Total additional amount$500 million
    Remaining authorization amount$400 million (as of September 30, 2024)
    DetailsThe program allows for share repurchases through open market purchases, including 10b5-1 plans, and can be activated, suspended, or discontinued at any time.

    Past Guidance

    Q2 2025 Earnings Call

    • Issued Period: Q2 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Constant Currency Organic Revenue Growth: 6% to 7% .
      2. Adjusted Earnings per Diluted Share: $9.05 to $9.25 .
      3. Free Cash Flow: Approximately $700 million .
      4. Capital Spending: About $360 million .
      5. Healthcare Segment Revenue Growth: Mid- to high single digits .
      6. Life Sciences Revenue: About flat .
      7. AST Segment Revenue Growth: High single-digit .
      8. Interest Expense: About $90 million .
      9. Profit Margins: About flat .

    Q1 2025 Earnings Call

    • Issued Period: Q1 2025
    • Guided Period: FY 2025
    • Guidance:
      1. Constant Currency Organic Revenue Growth: 6% to 7% .
      2. Adjusted Earnings per Diluted Share: $9.05 to $9.25 .
      3. Free Cash Flow: About $700 million .
      4. Capital Spending: Approximately $360 million .
      5. Healthcare Capital Equipment Revenue Growth: Low single-digit .
      6. Full Year Tax Rate: 23% .
      7. Interest and Other Expenses: About $100 million .

    Q4 2024 Earnings Call

    • Issued Period: Q4 2024
    • Guided Period: FY 2025
    • Guidance:
      1. Revenue Growth: 6.5% to 7.5% as reported; 6% to 7% constant currency organic .
      2. AST Segment Growth: High single digits .
      3. Healthcare Growth: Mid-single digits .
      4. Life Sciences Growth: Low single digits .
      5. Adjusted EPS: $9.05 to $9.25, increasing 10% to 13% .
      6. Earnings Split: 45% in the first half, 55% in the second half .
      7. Pricing: 200 basis points favorable .
      8. EBIT Margins: Expected to improve .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: FY 2024
    • Guidance: Specific metrics for this period are not detailed in the documents provided .

    Competitors

    Competitors mentioned in the company's latest 10K filing.

    • 3M: Competitor in product offerings.
    • Baxter: Competitor in product offerings.
    • Boston Scientific: Competitor in product offerings.
    • Belimed: Competitor in product offerings.
    • Fortive: Competitor in product offerings.
    • Getinge: Competitor in product offerings.
    • Karl Storz: Competitor in product offerings.
    • Olympus: Competitor in product offerings and service lines.
    • Ruhof: Competitor in product offerings.
    • SteelCo: Competitor in product offerings.
    • Stryker: Competitor in product offerings.
    • Skytron: Competitor in product offerings.
    • Wassenburg: Competitor in product offerings.
    • Agiliti: Competitor in service lines.
    • BBraun: Competitor in service lines.
    • Crothall: Competitor in service lines.
    • Pentax: Competitor in service lines.