Steris (STE) Misses on Q1 Earnings and Revenues, Both Up Y/Y - Analyst Blog

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Steris Corp. ( STE ) reported its first-quarter fiscal 2015 adjusted earnings of 54 cents per share, up 22.7% from the year-ago level of 44 cents. However, it missed the Zacks Consensus Estimate by a penny. Without these adjustments, the reported EPS plummeted 24.1% to reach 41 cents in the reported quarter.

Revenues in Detail

Revenues improved 12.2% year over year to $412.6 million in the quarter, but lagged the Zacks Consensus Estimate of $425 million. The year-over-year growth was driven by solid performance in the company's Healthcare and Isomedix segments. Organic growth in the quarter was 3%.

According to the company, revenue growth remained in line with its expectations as the consumables business successfully exceeded the forecast but was offset by softness in capital equipment shipments.

Segments in Detail

Revenues from the Healthcare segment (73.4% of total revenue) increased 16.9% year over year to $302.8 million in the reported quarter. Growth in the top line was driven by 43% increase in service revenues, 12% growth in consumable revenues and 1% increase in capital equipment revenues. However, excluding the IMS and Eschmann acquisitions, organic revenue growth in this segment was 4%.

Revenues from Life Sciences (14.2% of total revenue) dropped 2.2% to $58.6 million in the reported quarter. The 6% increase in consumable revenues and 9% growth in service revenues were offset by an 18% decline in capital equipment revenues during the quarter. STERIS Isomedix Services revenues were $51.2 million (accounting for the rest), up 6.2% year over year.

Margins

Gross margin expanded 128 basis points (bps) year over year to 41.2% in the first quarter with 15.8% increase in gross profit. The increase came on the back of favorable product mix and foreign currency, partially offset by higher material costs and inflation.

Steris witnessed a 21% year-over-year increase in selling, general, and administrative expenses to $113.7 million and 4.7% increase in research and development expenses to $12.4 million in the quarter. Consequently, operating margin contracted 51 bps to 10.7% year over year.

Financial Details

Steris exited the first quarter of fiscal 2015 with cash and cash equivalents and short-term investment of $157.9 million compared with $153.8 million at the end of 2014. The company had long-term debt of $658.7 million at quarter-end.

During the reported quarter, the company generated $46.4 million in cash flow from operations. Capital expenditure incurred by the company was $23.4 million resulting in a free cash flow of $23.1 million for the quarter.

Guidance

The company reiterated its outlook for fiscal 2015. It continues to expect revenue growth in the range of 15-17% and adjusted earnings per share in the range of $2.78 to $2.91 for the year. The current Zacks Consensus Estimate for revenues is pegged at $1.89 billion while the same for EPS stands at $2.88 (within the guided range).

Our Take

Steris made a struggling start to fiscal 2015 with its first quarter earnings and revenues both missing the respective Zacks Consensus Estimate. Although revenues showed a year-over-year improvement of 12%, acquisition-related growth accounted for the lion's share of this. However, the Healthcare segment showed strength in both consumable and service revenues.

The stock currently bears a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better-ranked medical stocks that are worth a look include Edwards Lifesciences Corp. ( EW ), Hologic Inc. ( HOLX ) and Hansen Medical, Inc. ( HNSN ). All of these three stocks carry a Zacks Rank #2 (Buy).


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STERIS CORP (STE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: HOLX , EW , HNSN , STE

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