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STERIS plc (STE)·Q2 2026 Earnings Summary

Executive Summary

  • Q2 FY26 revenue was $1.460B (+10% YoY) with adjusted EPS $2.47 and GAAP diluted EPS $1.94; both revenue and EPS exceeded Wall Street consensus, driven by strong service growth and price/productivity offsetting tariffs and inflation . Consensus for Q2 EPS was ~$2.35* and revenue ~$1.432B*, implying beats on both metrics. Values retrieved from S&P Global.
  • Guidance raised: constant currency organic revenue growth to 7–8% (from 6–7%), adjusted EPS to $10.15–$10.30 (from $9.90–$10.15), and free cash flow to ~$850M (from ~$820M). Effective tax rate increased to ~24% (from ~23.5%); as‑reported revenue growth remains 8–9% .
  • Segment performance: Healthcare $1,033.8M (+9% YoY; service +13%, consumables +10%), AST $281.5M (+10% YoY; services +13%, capital –76%), Life Sciences $145.0M (+13% YoY; capital +39%) .
  • Stock reaction catalysts: raised EPS/FCF outlook; margin expansion (Q2 gross margin 44.3%, EBIT margin 23.1%) despite headwinds; strong backlogs (Healthcare $427.5M, Life Sciences $113.7M) .

What Went Well and What Went Wrong

What Went Well

  • Broad-based growth with constant currency organic revenue +9% and adjusted EPS +15% YoY; CEO: “Our performance exceeded expectations and margins improved nicely” .
  • Margin expansion: gross margin to 44.3% (+60 bps YoY) and EBIT margin to 23.1% (+90 bps YoY), driven by price and productivity despite tariffs and inflation .
  • Cash generation: YTD free cash flow $527.7M (+53% YoY) on earnings growth and working capital improvements; CFO highlighted strong first-half cash flow .

What Went Wrong

  • Tariffs and inflation headwinds: tariffs reduced margins by ~90 bps and material/labor inflation by ~130 bps in the quarter; FY26 pre-tax tariff impact still ~-$45M .
  • AST capital equipment fell 76% YoY, though services rose 13%; mix shift favored services with higher margins .
  • Life Sciences margins declined ~70 bps as price/volume gains were more than offset by tariffs and inflation .

Financial Results

MetricQ4 2025Q1 2026Q2 2026
Revenue ($USD Millions)$1,480.5 $1,391.1 $1,460.3
GAAP Diluted EPS ($)$1.48 $1.79 $1.94
Adjusted Diluted EPS ($)$2.74 $2.34 $2.47
Gross Margin (%)—45.3% 44.3%
EBIT Margin (%)—22.8% 23.1%

Actual vs Consensus (Q2 FY26):

MetricConsensus*Actual
Adjusted EPS ($)2.351*2.47
Revenue ($USD Millions)1,432.4*1,460.3

Values retrieved from S&P Global.

Segment breakdown (Q2 YoY):

SegmentQ2 2025 Revenue ($MM)Q2 2026 Revenue ($MM)Q2 2025 Segment OI ($MM)Q2 2026 Segment OI ($MM)
Healthcare$944.2 $1,033.8 $228.0 $259.5
AST$256.7 $281.5 $109.9 $127.6
Life Sciences$127.9 $145.0 $53.7 $59.9

Revenue mix (Total Company):

CategoryQ2 2025 ($MM)Q2 2026 ($MM)
Consumables$414.4 $452.0
Service$633.0 $714.9
Recurring Total$1,047.4 $1,166.8
Capital Equipment$281.5 $293.5
Total Revenues$1,328.9 $1,460.3

KPIs and balance/cash:

KPIQ1 2026Q2 2026
YTD Free Cash Flow ($MM)$326.5 $527.7
YTD CapEx ($MM)$93.6 $180.1
Cash & Equivalents ($MM)$279.7 $319.2
Total Debt ($B)$1.9 $1.9
Healthcare Backlog ($MM)$403.5 $427.5
Life Sciences Backlog ($MM)$111.0 $113.7
Total Backlog ($MM)$514.5 $541.3
Adjusted Effective Tax Rate (%)23.5% 24.5%
Dividend per share ($)$0.57 $0.63

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Constant currency organic revenue growth (%)FY 20266–7% 7–8% Raised
As-reported revenue growth (%)FY 20268–9% 8–9% Maintained
FX impact to revenue (bps)FY 2026~+200 bps ~+100 bps Lowered
Adjusted EPS ($)FY 2026$9.90–$10.15 $10.15–$10.30 Raised
Effective tax rate (%)FY 2026~23.5% ~24% Raised
Free cash flow ($MM)FY 2026~$820 ~$850 Raised
CapEx ($MM)FY 2026~$375 ~$375 Maintained
Tariff impact (pre-tax, $MM)FY 2026~-$45 ~-$45 Maintained
Quarterly dividend ($/share)Current run-rate$0.57 $0.63 Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 FY25 and Q1 FY26)Current Period (Q2 FY26)Trend
Tariffs/inflationFY26 tariff guide raised to ~$45M (from $30M) in Q1; inflation noted; metals tariffs increased; FX favorable Tariffs ~90 bps and inflation ~130 bps margin headwinds; tax rate increased to 24% Persistent headwind but offset by price/productivity
Service pricing and growthHealthcare service +13% Q1; pricing achievable, likely deceleration as labor normalizes Healthcare service +13%; pricing normalization expected; margin impact limited Sustained growth with moderated pricing
AST capacity and mixStrong services; cautious on organic outlook despite double-digit start; capacity expansions ongoing Services +13%; capital down; EBIT margin 45.3%; capacity expansions continue High-margin services driving mix; capacity build steady
Life Sciences capital recoveryQ1 backlog up >50% to $111M; early signs of recovery post trough Capital +39%; backlog >50% to $114M; reshoring could help Recovery underway off easy comps
FXQ1: ~200 bps revenue favorability; largely hedged; bottom-line FX ~$14–15M FX impact reduced to ~100 bps in FY guide Moderating FX tailwind
Regulatory (EO/NESHAP)Company did not seek relief; already compliant; impact on competitors limited No new updates; continued compliance posture Stable regulatory positioning
ASC buildoutASC trends benefit capital as procedures relocate; need training/compliance No change; supports healthcare capital backlog Structural tailwind

Management Commentary

  • CEO: “Our performance exceeded expectations and margins improved nicely, despite several headwinds. As a result, we are increasing our outlook for fiscal 2026.”
  • CFO: “Gross margin… increased 60 basis points… to 44.3%. EBIT margin increased 90 basis points to 23.1%… Positive price and productivity… more than offset increased inflation and tariff costs.”
  • CEO (segments): Healthcare organic +9%; AST services +13% with margins 45.3%; Life Sciences capital +39% and backlog up >50% to $114M; tariffs primarily impacted Healthcare .
  • CFO: “Free cash flow… $527.7 million… driven by the increase in earnings and improvements in working capital.”

Q&A Highlights

  • AST services sustainability: Stable medtech volumes, bioprocessing recovery, and expansions underpin 9–10% services growth outlook .
  • Quantified headwinds: Tariffs ~90 bps and material/labor inflation ~130 bps headwinds to margins in Q2 .
  • Healthcare service pricing: Double-digit growth likely moderates as labor costs normalize; margin impact limited .
  • Modality mix: X-ray is an important tool but sterilization technologies viewed holistically; not broken out .
  • Capacity: AST expansion projects take 2–3 years; multi-year capacity additions in place across geographies .
  • Life Sciences reshoring: Some benefit to capital equipment from manufacturing moves; recovery off prior troughs .
  • Single-use scopes: Appropriate for small-diameter scopes; large-diameter scopes (e.g., colonoscopy) remain durable and reusable focus .
  • Free cash flow cadence: Strong first-half FCF due to earnings and working capital; full-year guide includes caution .

Estimates Context

  • Q2 FY26 beats: Adjusted EPS $2.47 vs consensus ~$2.35*; revenue $1.460B vs consensus ~$1.432B*. Values retrieved from S&P Global. Actuals cited above .
  • Forward consensus: Q3 FY26 EPS ~$2.53*, revenue ~$1.481B*; Q4 FY26 EPS ~$2.875*, revenue ~$1.596B*. Values retrieved from S&P Global.
  • Implication: Consensus likely revises up modestly on stronger margins, service growth, and raised full-year EPS/FCF outlook .

Key Takeaways for Investors

  • Raised FY26 adjusted EPS ($10.15–$10.30) and FCF (~$850M) guidance, with constant currency organic growth now 7–8%—a clear positive catalyst .
  • Q2 margin expansion despite 220 bps of combined tariff/inflation headwinds underscores pricing and productivity levers; gross margin 44.3%, EBIT margin 23.1% .
  • Services-led growth in Healthcare and AST supports mix and profitability; Healthcare service +13% and AST service +13% with 45.3% EBIT margins .
  • Capital backlogs remain robust (Healthcare $427.5M; Life Sciences $113.7M), providing visibility into 2H shipments despite tough comps .
  • Tariff headwinds (~$45M FY) and a higher tax rate (24%) temper the guide but are largely offset by FX and operating execution .
  • Strong YTD FCF ($527.7M) and low leverage (~$1.9B debt) enable continued buybacks (offset dilution) and optionality for M&A .
  • Near-term trading: Expect positive reaction to beats and raised outlook; watch service growth normalization and AST capital timing; medium-term thesis favors recurring revenue scale, pricing discipline, and backlog conversion .
Notes: * Values retrieved from S&P Global.