Release Date: February 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Steris PLC (STE, Financial) reported a 6% growth in total revenue for the third quarter, driven by volume and price increases.
- Gross margin improved by 90 basis points to 44.6%, indicating effective management of costs and pricing strategies.
- Adjusted earnings per diluted share increased by 11% to $2.32, showcasing strong earnings growth.
- Free cash flow for the first nine months reached $588 million, on track to meet the full-year guidance of $700 million.
- Healthcare segment saw a 7% growth in constant currency organic revenue, driven by strong recurring revenue streams and market share gains.
Negative Points
- EBIT margin decreased by 10 basis points to 23.3% due to litigation expenses and increased healthcare benefit costs.
- Healthcare capital equipment revenue declined by 5% due to shipment delays, impacting overall revenue expectations.
- Currency rate changes negatively impacted both revenue and profit, leading to a revised earnings guidance.
- Legal expenses related to the ethylene oxide trial increased significantly, adding financial pressure.
- Life Sciences Group experienced a 1% decline in constant currency organic revenue, affected by a drop in capital equipment revenue.
Q & A Highlights
Q: Can you elaborate on the delays in healthcare capital equipment orders? Are these delays specific to the third quarter, or is there a broader trend of hesitancy in capital expenditure?
A: The delays are primarily due to customers not being ready to receive orders as initially planned. This is not necessarily a trend, but rather a result of a few large orders affecting the quarter. We are seeing strong order growth, indicating that spending remains robust. - Dan Carestio, President, CEO, & Director
Q: How are you viewing the potential risk of tariffs being reintroduced in regions like Canada and Mexico for FY26?
A: The situation is fluid, and we are not commenting directly on potential impacts. We are analyzing the situation and exploring options to mitigate any potential effects. Our facilities in Canada and Mexico account for just under 10% of our cost of goods sold. - Mike Tokich, CFO & SVP
Q: Can you discuss the sustainability of the strong margin performance in healthcare and life sciences?
A: The margin improvements are driven by favorable volume, mix, and pricing. We are seeing productivity improvements in healthcare for the first time this year. While we are on track for the rest of this year, we are not commenting on FY26 yet. - Mike Tokich, CFO & SVP
Q: What are the prospects for life sciences to return to organic growth over the next year?
A: Life sciences have been impacted by a slowdown in capital equipment, but we are seeing significant growth in consumables. We are optimistic about growth trends and our position in the aseptic manufacturing environment of Pharma. - Dan Carestio, President, CEO, & Director
Q: How are you addressing the legal expenses related to the ethylene oxide trial, and what should we expect going forward?
A: Legal expenses are recorded in corporate expenses, not in segments. We incurred about $6 million in increased expenses this quarter and expect an additional $5 million in the fourth quarter. These expenses are included in our forecast. - Mike Tokich, CFO & SVP
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
