STERIS plc (STE) Poised for Growth Ahead of Q1 Earnings Release
STERIS plc (NYSE: STE) is gearing up to report its first-quarter fiscal 2025 earnings on August 6th. The company boasts a strong earnings surprise history, exceeding expectations in three of the past four quarters. However, investors will be keeping a close eye on the potential impact of macro-economic challenges and industry-specific trends on the company’s performance in the upcoming quarter.
Key Takeaways:
- STERIS has a reputation for exceeding earnings expectations. The company’s strong earnings surprise history, with an average surprise of 2.21%, suggests a consistent track record of surpassing analysts’ estimates.
- Healthcare segment is expected to continue its strong momentum. STERIS’ Healthcare segment benefits from robust growth in capital equipment, consumables, and services fueled by favorable pricing and productivity. Additionally, the company’s restructuring efforts are likely to bolster its performance.
- Applied Sterilization Technologies (AST) segment is showing signs of recovery. While MedTech inventory destocking and bioprocessing customer demand impact remained in the previous quarter, signs of recovery in MedTech demand could contribute to improved performance in the upcoming report.
- Life Sciences segment is expected to remain steady. STERIS’ divestiture of the Controlled Environmental Services business within the Life Sciences segment may have impacted revenues but the overall segment is expected to remain stable based on its long-term performance expectations.
- The company’s recent sale of the Dental segment might negatively impact the fiscal first-quarter earnings. Nonetheless, the proceeds from the sale will primarily be utilized to reduce debt, potentially benefiting the company’s financial health.
A Deeper Dive into STERIS’ Key Segments
Healthcare: A Beacon of Strength?
The Healthcare segment is a key growth driver for STERIS. The company’s strong position in capital equipment, consumables, and services bodes well for continued success. Positive pricing and high productivity levels have fueled rapid growth.
The company is actively addressing macro-economic challenges and has a restructuring plan in place to streamline operations. With the expectation of a normalized backlog, the Healthcare segment is likely to deliver compelling results in the upcoming quarter.
Applied Sterilization Technologies (AST): Navigating a Recovery
The Applied Sterilization Technologies (AST) segment faced headwinds in previous quarters due to MedTech inventory destocking and a downturn in bioprocessing customer demand. However, the company has witnessed signs of a rebound in the MedTech sector. This recovery, fueled by an improving procedure environment and the gradual depletion of customer inventory in the United States, could have a positive impact on the upcoming earnings report.
Still, the impact of the bioprocessing slowdown could linger in the first quarter of fiscal 2025. STERIS has acknowledged that the sector is not anticipated to see significant growth until the second half of fiscal 2025, potentially dampening the AST segment’s overall performance.
Life Sciences: Stable, But Facing Divestiture Aftershocks
The Life Sciences segment achieved its long-term expectations in the previous fiscal year. However, the divestiture of the Controlled Environmental Services business during fiscal 2025 is expected to impact the upcoming quarter’s revenue.
Despite the divestiture, the company’s long-term outlook for the Life Sciences segment remains positive.
Dental: A Diminishing Impact?
The recent sale of the Dental segment might impact STERIS’ fiscal first-quarter earnings, particularly its revenue. The company will only report one month of sales from the Dental business. However, the sale’s proceeds will be used primarily to reduce debt, a positive move for STERIS’ financial position.
The Verdict: A Cautiously Optimistic Outlook
While STERIS has consistently exceeded earnings expectations, the current quarter presents a complex landscape. The company’s restructuring efforts, potential recovery in the AST segment, and continued strength in Healthcare are positive signs. However, challenges like the bioprocessing slowdown and the divestiture of the Dental segment add a layer of uncertainty to the earnings outlook.
Investors will be watching closely to see how STERIS navigates these complexities.
