Exchange: NYSE | Sector: Healthcare | Industry: Medical Devices
Q1 2025
Published: Aug 8, 2024
Earnings Highlights
Revenue of $1.28B down 0.4% year-over-year
EPS of $1.46 increased by 17.6% from previous year
Gross margin of 44.8%
Net income of 145.40M
"“Total revenue growth of 8% in the quarter, constant currency organic revenue growth of 6% driven by volume, as well as 270 basis points of price.â€" - Mike Tokich
STERIS plc (STE) QQ1 2025 Earnings Analysis: Resilient Revenue Growth, Margin Expansion Tailwinds, and Strategic Positioning in Healthcare Infection Prevention
Executive Summary
STERIS reported a solid start to fiscal 2025 (QQ1) with revenue of approximately $1.28 billion, delivering modest currency-adjusted topline growth and a robust margin profile. Management highlighted a blend of volume-driven growth and price Realization, noting constant currency organic revenue growth of 6% and 270 basis points of price, contributing to a gross margin of about 45% and an EBIT margin near 22% on continuing operations. Reported GAAP net income totaled roughly $145 million, with adjusted EPS of $2.03 and a quarterly GAAP EPS of $1.47, underscoring a favorable mix of higher-margin services and consumables versus capital equipment sensitivity.
Key operational themes center on a normalization of capital equipment orders after an extended backlog, a continued lift in consumables and services (driven by procedure volumes), and ongoing deleveraging following the dental divestiture completed late in the period. Free cash flow was strong at about $196 million, supporting a 19th consecutive year of dividend increases (quarterly dividend up to $0.57 from $0.52). Management reaffirmed full-year guidance, targeting 6%–7% constant currency organic revenue growth and adjusted diluted EPS of $9.05–$9.25, with roughly $700 million of free cash flow and around $360 million in capital expenditures.
Overall, the QQ1 print reinforces STERIS’s diversified mix—Healthcare, Applied Sterilization Technologies (AST), Life Sciences, and Dental—while signaling a cycle of backlog normalization and continued levered cash generation. Investors should monitor cadence of capital equipment orders, the trajectory of consumables/services growth (especially in the US), and the pace of deleveraging as the company integrates its divestitures and expands its service-based revenue.
Key Performance Indicators
Revenue
1.28B
QoQ: -9.86% | YoY:-0.39%
Gross Profit
572.67M
44.76% margin
QoQ: -1.74% | YoY:-0.14%
Operating Income
185.53M
QoQ: -24.70% | YoY:-6.18%
Net Income
145.40M
QoQ: 10 659.26% | YoY:17.68%
EPS
1.47
QoQ: 10 675.54% | YoY:17.60%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1,279,502,000; YoY change: -0.39%; QoQ change: -9.86% (Revenue declined QoQ while management highlighted CC organic growth of 6% in the quarter).
Net Income: $145,401,000; Net margin: 11.36%; YoY change: +17.68%; QoQ change: +10,659.26% (notable one-off or mix effects implied in GAAP vs adjusted metrics).
Summary of QQ1 2025 financials and relevant YoY/QoQ trends (USD, IFRS/GAAP basis where applicable):
- Revenue: $1,279,502,000; YoY change: -0.39%; QoQ change: -9.86% (Revenue declined QoQ while management highlighted CC organic growth of 6% in the quarter).
- Gross Profit: $572,671,000; Gross margin: 0.4476; YoY change: -0.14%; QoQ change: -1.74%.
- Operating Income: $185,531,000; Operating margin: 14.50%; YoY change: -6.18%; QoQ change: -24.70%.
- Net Income: $145,401,000; Net margin: 11.36%; YoY change: +17.68%; QoQ change: +10,659.26% (notable one-off or mix effects implied in GAAP vs adjusted metrics).
- Earnings per Share (EPS): $1.47 (GAAP); Diluted EPS: $1.46; YoY EPS change: +17.60%; QoQ EPS change: +10,675.54% (reflects quarterly mix and discrete items).
- EBITDA: $318,341,000; EBITDA margin (EBITDA/Revenue): 24.88%; EBITDARatio: 0.2488.
- Free Cash Flow (FCF): $195.7 million; Net cash from operating activities: $303.7 million; Capex: $108.1 million; FCF impacted by timing of capital expenditures.
- Balance Sheet (selected): Total assets $10.11B; Total liabilities $3.74B; Total stockholders’ equity $6.35B. Net debt $2.29B; Debt/EBITDA ~1.6x gross leverage; Long-term debt $2.37B; cash and cash equivalents $198.3 million.
- Liquidity and capital allocation: Operating cash flow generated supports ongoing dividend growth (19th consecutive year of increases; quarterly dividend $0.57), and debt reduction post-dental divestiture; expected annual free cash flow around $700 million with capex around $360 million.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.28B
-0.39%
-9.86%
Gross Profit
572.67M
-0.14%
-1.74%
Operating Income
185.53M
-6.18%
-24.70%
Net Income
145.40M
17.68%
10 659.26%
EPS
1.47
17.60%
10 675.54%
Key Financial Ratios
currentRatio
2.33
grossProfitMargin
44.8%
operatingProfitMargin
14.5%
netProfitMargin
11.4%
returnOnAssets
1.44%
returnOnEquity
2.29%
debtEquityRatio
0.39
operatingCashFlowPerShare
$3.07
freeCashFlowPerShare
$1.98
dividendPayoutRatio
35.4%
priceToBookRatio
3.4
priceEarningsRatio
37.15
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management takeaways from the QQ1 2025 earnings call, grouped by theme:
- Revenue, mix, and growth trajectory: Management highlighted an 8% total revenue growth in the quarter, with constant currency organic revenue growth of 6% driven by volume and 270 basis points of price. This points to a healthy mix shift toward higher-margin consumables and services within a procedural-driven environment.
- Margin dynamics and cost structure: The CFO noted that gross margin expanded modestly to 45.1% year over year, supported by favorable material costs offset by inflation. The CEO emphasized that operating margins benefited from real pricing and efficiency in services, though higher compensation and insurance costs constrained EBIT margin year over year. Management still guided to positive EBIT margin leverage for the full year despite Q1 pressures.
- Segment commentary and outlook: Healthcare segment delivered CC organic revenue growth of 5% in the quarter, with consumables and services outperforming capital equipment. AST posted 8% CC organic growth—the strongest in over a year—driven by European MedTech and flat bioprocessing globally. Life Sciences grew ~4% CC, led by consumables, while CECS divestiture impacted reported revenue but not the full-year outlook.
- Backlog normalization and capital equipment cadence: Management acknowledged that Q1 is typically the slowest quarter for healthcare capital equipment shipments, and that the backlog built during supply-chain disruptions is now turning, enabling higher turn shipments as lead times normalize. The discussion emphasized the plan to install and monetize turn orders by year-end.
- Guidance and capital deployment: The company reaffirmed full-year guidance of 6%–7% CC organic revenue growth and adjusted EPS of $9.05–$9.25, with free cash flow ~ $700 million and capex ~ $360 million. The dividend was increased for the 19th consecutive year, and the dental divestiture supported debt paydown and balance-sheet deleveraging.
“Total revenue growth of 8% in the quarter, constant currency organic revenue growth of 6% driven by volume, as well as 270 basis points of price.â€
— Mike Tokich
“The problem is the model got broken over the last 18 months in terms of how it normally has operated historically. And we ended up having a lot of backlog and a lot of large project orders. What we have now, the ability to sell a lot more on the turn business, which is something we weren’t really able to do over the last 18, 24 months.â€
— Dan Carestio
Forward Guidance
STERICIS reaffirmed its FY2025 outlook during QQ1, signaling confidence in a mid-to-high single-digit organic revenue trajectory in constant currency and stable profitability. Key drivers and considerations:
- Revenue trajectory: 6%–7% CC organic revenue growth remains the baseline; growth is expected to be more resilient in consumables/services given ongoing procedure volumes, particularly in the U.S., with AST supporting broader global expansion. The company cautioned that capital equipment revenue could remain volatile in the short term as backlog normalizes after a period of supply-chain disruption.
- Margin and profitability: The company expects positive EBIT margin leverage for the year, supported by favorable mix and ongoing cost discipline, but near-term inflationary pressures (especially labor costs) could temper margin expansion in the quarter-to-quarter view.
- Cash flow and capital allocation: Free cash flow guidance of roughly $700 million and capex near $360 million reinforce a strong cash-generation profile. The dividend remains a priority, demonstrated by a $0.05 per share increase in the QQ1 quarter and a long track record (19 straight years of dividend increases).
- M&A and restructuring: A $100 million restructuring program was discussed with anticipated benefits, most of which are realized in 2026; management indicated ongoing capacity to pursue disciplined M&A if compelling strategic fits arise, though no explicit targets were disclosed.
- Risks to watch: (1) continued normalization of capital equipment orders – the speed of backlog turnover could influence near-term revenue sequencing; (2) input-cost inflation (labor, insurance) and currency effects; (3) capital spending cycles in Life Sciences and injectables demand; (4) regulatory and competitive dynamics in infection-prevention and sterilization markets.
- Bottom line: The balance of ongoing consumables/services growth, a gradually improving capital equipment cadence, debt deleveraging post-divestiture, and a disciplined dividend policy underpin a constructive near-to-medium-term outlook, contingent on stabilization of macro and sector-specific capex cycles.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STE Focus
44.76%
14.50%
2.29%
37.15%
OFIX
65.20%
-14.90%
-6.32%
-3.68%
NUVA
71.90%
2.98%
-0.12%
-532.61%
GKOS
76.30%
-31.90%
-9.06%
-28.26%
HSKA
43.90%
-14.80%
-2.34%
-25.94%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
STERICIS presents a constructive medium-term investment case grounded in a diversified, recurring-revenue model and a disciplined capital-allocation framework. The QQ1 results confirm resilience in core earnings and cash generation, underpinned by meaningful dividend growth and a clear path to debt reduction post-divestitures. The reaffirmed full-year guidance (6%–7% CC organic revenue growth; adjusted EPS $9.05–$9.25; free cash flow ~ $700 million) provides visibility into earnings progression as the capital equipment cycle normalizes and the services/consumables mix continues to drive stable profitability. Investors should monitor (1) the pace of backlog turn and order momentum in Healthcare capital equipment, (2) the cadence of consumables/services growth across regions, particularly US centers of care, (3) currency and input-cost dynamics, and (4) progress on restructuring gains and any opportunistic M&A activity. If the company maintains its trajectory, with stabilizing capex and ongoing margin discipline, STERIS should sustain solid cash generation and a healthy dividend profile, supported by a debt position that remains within strategic targets.
Key Investment Factors
Growth Potential
STERIS benefits from secular demand for infection prevention, sterilization, and sterile processing efficiency across Hospitals, Life Sciences, and Dental markets. Recurring consumables and service revenue provide earnings resilience, while AST expansions and Europe MedTech growth add potential for accelerated top-line growth. The company’s enterprise-solution approach (combining consumables, services, and capital equipment) enables higher share-of-wallet within large IDNs and healthcare systems, which should support mid- to high-single-digit CC revenue growth over the cycle. The Life Sciences consumables and services are poised to offset capital spending variability as injectables demand remains robust, providing a degree of earnings stability as capital expenditure cycles normalize.
Profitability Risk
Key risks include: (1) cyclicality and volatility in capital equipment orders amid funding cycles and supply chain normalization; (2) margin pressure from accelerated wage growth and higher insurance costs; (3) integration risks from divestitures and the need to realize anticipated debt reduction; (4) macroeconomic or currency headwinds affecting international operations; (5) competition in infection-prevention and sterilization technologies and pricing pressure on high-volume consumables.
Financial Position
Strong liquidity profile and robust free cash flow generation (FCF ~ $700m guidance; QQ1 FCF $195.7m) support deleveraging and dividend resilience. Net debt of ~$2.29B against a gross leverage of ~1.6x EBITDA provides room for strategic investments. The company closed the dental divestiture, enabling debt paydown and improved balance-sheet strength. Catered to a diversified asset base with meaningful cash generation, STERIS maintains a prudent capital structure with a debt-to-capitalization of ~28.1% and a debt-to-EBITDA around 1.6x, indicating a balanced risk posture in a capital-intensive sector.
SWOT Analysis
Strengths
Diversified, global, multi-segment portfolio (Healthcare, AST, Life Sciences, Dental) with strong recurring revenue from consumables and services.
Solid free cash flow generation and a track record of dividend growth (19th consecutive increase).
Deleveraging progress post-divestiture improves balance sheet and flexibility for capex or strategic moves.
Operational leverage potential as capital equipment orders normalize and turn-backs accelerate.
Weaknesses
Capital equipment is cyclically sensitive; backlogs created during supply constraints can distort near-term revenue visibility.
Near-term margin pressures from elevated labor costs and insurance-related costs; sensitivities to inflation persist.
Mixed quarterly GAAP results versus adjusted metrics may complicate near-term earnings interpretation.
Opportunities
Growth in consumables/services in the US driven by procedure volumes and market share gains.
AST expansion in Europe and continued bioprocessing demand could unlock faster growth in high-margin tech-enabled services.
injectable drug manufacturing demand aligns with Life Sciences offerings (aseptic processes, barrier products).
Potential M&A opportunities in adjacent infection-prevention and life sciences segments if strategic fits arise.
Threats
Macro uncertainty impacting hospital capital budgets and pharma funding, affecting capital equipment orders.
Competitive dynamics and pricing pressure in high-volume consumables and capital equipment bundles.
Regulatory changes and supply chain disruptions could impact lead times and cost structure.