Exchange: NYSE | Sector: Healthcare | Industry: Medical Devices
Q3 2025
Published: Feb 7, 2025
Earnings Highlights
Revenue of $1.37B up 5.6% year-over-year
EPS of $1.75 increased by 23.2% from previous year
Gross margin of 44.5%
Net income of 173.53M
"Orders grew over 10% in the third quarter, which is reflected in the $435 million healthcare backlog. While order growth remains robust, shipments were delayed by customer project delays." - Dan Carestio
STERIS plc (STE) QQ3 2025 Financials: Solid Organic Growth, Margin Expansion, and Backlog Strength Amid Currency Headwinds and EO Proceedings
Executive Summary
STERIS delivered a solid QQ3 2025 performance anchored by broad-based organic growth across Healthcare and Applied Sterilization Technologies (AST), with Life Sciences still solid on consumables and services despite a divestiture drag. Total revenue of $1.3706 billion grew about 6% on a reported and constant-currency basis, underpinned by volume and price, while gross margins rose to 44.6% (+90 bps YoY). Operating income reached $245.3 million and diluted EPS from continuing operations was $2.32 on an adjusted basis, up 11% YoY. Management highlighted strong healthcare backlog ($435 million) and order growth (>10%) even as shipments were delayed by customer project timing. The company also indicated meaningful margin leverage from volume, pricing, and productivity across Healthcare and Life Sciences, with CECS divestiture contributing to a 390 bps margin uplift in Life Sciences. On the profitability and liquidity front, STE enjoys a robust balance sheet, with net debt of approximately $2.165 billion and debt-to-EBITDA around 1.5x, and generated $588 million of free cash flow in the first nine months, on track to roughly $700 million for the year. The outlook remains constructive but tilted by currency headwinds and EO-related litigation costs. The company reaffirmed a 2025 guidance path of ~6% revenue growth (as-reported) and ~6% constant-currency organic growth, with adjusted EPS guidance of $9.05-$9.15 and ~$700 million of free cash flow, implying continued deleveraging and earnings resilience even as foreign exchange and regulatory matters pose near-term headwinds.
Key Performance Indicators
Revenue
1.37B
QoQ: 3.13% | YoY:5.61%
Gross Profit
610.33M
44.53% margin
QoQ: 5.45% | YoY:8.98%
Operating Income
245.29M
QoQ: 11.67% | YoY:13.48%
Net Income
173.53M
QoQ: 15.66% | YoY:23.30%
EPS
1.75
QoQ: 15.13% | YoY:23.24%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.3706B, up ~6% YoY and ~6% CC growth; QoQ growth ~3.1% (per quarterly metrics).
Gross margin: 44.6% (+90 bps YoY), aided by favorable mix and productivity gains offsetting labor inflation.
Operating income: $245.3M, OI margin 23.3% (down ~10 bps YoY).
EBITDA: $373.8M; EBITDA margin 27.3%.
Net income (continuing ops): $229.0M; net income margin ~16.7% on continuing ops.
Financial Highlights
Segment and margin fundamentals are the core driver of this quarter's performance. Highlights include:
- Revenue: $1.3706B, up ~6% YoY and ~6% CC growth; QoQ growth ~3.1% (per quarterly metrics).
- Gross margin: 44.6% (+90 bps YoY), aided by favorable mix and productivity gains offsetting labor inflation.
- Operating income: $245.3M, OI margin 23.3% (down ~10 bps YoY).
- EBITDA: $373.8M; EBITDA margin 27.3%.
- Net income (continuing ops): $229.0M; net income margin ~16.7% on continuing ops.
- EPS (diluted, continuing ops): $2.32 adjusted, up 11% YoY; GAAP EPS was not provided in the transcript for the quarter.
- Free cash flow: Nine-month FCF of $588M; full-year guidance unchanged at ~$700M; capex run-rate ~ $360M in the year; operating cash flow of $332.8M in nine months.
- Leverage and liquidity: Total debt $2.312B; cash and cash equivalents $155.2M; total debt to EBITDA ~1.5x; current ratio 2.13x; quick ratio 1.40x.
- Backlog and mix: Healthcare backlog ~$435M; healthcare orders >10% growth; AST growth +10% CC with services up 10%; Life Sciences growth softened by CECS divestiture; CECS margins up ~390 bps due to favorable mix and divestiture.
- Guidance indicators: Currency headwinds (impacting revenue and profit) and timing delays in Healthcare Capital Equipment shipments are the biggest deviations versus prior expectations; as a result, as-reported revenue growth is guided ~6% with ~6% CC growth; adjusted EPS guidance $9.05–$9.15; FCF guidance ~ $700M; capex ~ $360M.
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.37B
5.61%
3.13%
Gross Profit
610.33M
8.98%
5.45%
Operating Income
245.29M
13.48%
11.67%
Net Income
173.53M
23.30%
15.66%
EPS
1.75
23.24%
15.13%
Key Financial Ratios
currentRatio
2.13
grossProfitMargin
44.5%
operatingProfitMargin
17.9%
netProfitMargin
12.7%
returnOnAssets
1.73%
returnOnEquity
2.7%
debtEquityRatio
0.36
operatingCashFlowPerShare
$3.38
freeCashFlowPerShare
$2.47
dividendPayoutRatio
32.4%
priceToBookRatio
3.16
priceEarningsRatio
29.17
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Key management insights and quotes from the QQ3 2025 earnings call, grouped by theme:
- Strategy and demand drivers:
• Dan Carestio emphasized robust demand and strong backlog: "Orders grew over 10% in the third quarter, which is reflected in the $435 million healthcare backlog. While order growth remains robust, shipments were delayed by customer project delays."
• Mike Tokich noted favorable mix and pricing across segments and productivity improvements: "Healthcare and Life Sciences both are being impacted by favorable volume, mix, and price. And healthcare, actually, for the first time all year, we actually started seeing productivity improvements."
- Operational execution and sequenced timing:
• On Healthcare Capital Equipment, management highlighted timing-driven delays rather than demand deterioration: "The spending is still great... just delays. The customers are not ready from what they prescribed to us as the original date when they make the order."
• AST growth was attributed to bioprocessing demand and stable global med tech customers: "growth in bioprocessing demand above our expectations."
- Market conditions and policy/regulatory headwinds:
• Currency headwinds were acknowledged as a material factor: "the biggest change since last quarter is the unfavorable impact of currency rate changes impacting both revenue and profit."
• EO-related regulatory exposure and legal costs were discussed as ongoing items: "We have incurred significant expenses defending Isometix... the retrial is scheduled for May."
- Guidance and risk assessment:
• Currency impact noted in guidance: "Reflecting approximately $0.10 of impact from negative currency, adjusted earnings per diluted share are now expected to be in the range of $9.05 to $9.15."
• Tariff risk discussion underscored by management: "we are not going to comment directionally as to what the impact could be... but we are working hard behind the scenes to understand what our options are.
Two management quotes:
- Quote 1 (Dan Carestio): "Orders grew over 10% in the third quarter, which is reflected in the $435 million healthcare backlog. While order growth remains robust, shipments were delayed by customer project delays."
- Quote 2 (Mike Tokich): "The biggest change since last quarter is the unfavorable impact of currency rate changes impacting both revenue and profit."
Orders grew over 10% in the third quarter, which is reflected in the $435 million healthcare backlog. While order growth remains robust, shipments were delayed by customer project delays.
— Dan Carestio
The biggest change since last quarter is the unfavorable impact of currency rate changes impacting both revenue and profit.
— Mike Tokich
Forward Guidance
Outlook assessment and considerations for 2025 and beyond:
- Revenue and growth trajectory: The company reaffirmed ~6% as-reported revenue growth and ~6% constant-currency organic growth for 2025, reflecting currency headwinds and softer near-term Hospital Capital Equipment shipments. This implies that underlying organic demand remains intact, but FX and project-shipment timing are compressing reported results.
- Earnings and margin trajectory: Adjusted EPS guidance of $9.05–$9.15 suggests modest full-year earnings growth even after currency headwinds, supported by volume growth, favorable mix, and productivity gains (notably in Healthcare). Management indicated more muted expectations for 2026 given currency and potential structural headwinds, though they will provide updates later in the year.
- Cash flow and capital allocation: Free cash flow guided at roughly $700 million, with capex around $360 million, supports deleveraging and optionality for value creation (share repurchases remain discretionary). The nine-month FCF of $588 million underscores resilient cash generation.
- Risk factors to monitor: currency volatility (FX headwinds), EO litigation costs, tariff/regulatory risk (especially in cross-border supply chains), and timing variability in Healthcare Capital Equipment shipments.
- Key factors for investors to monitor: (1) progression of order-to-shipment cycle, (2) trajectory of AST bioprocessing demand and Life Sciences consumables, (3) evolution of currency impact on revenue and margins, (4) EO case retrial outcomes and associated costs, and (5) capital deployment strategy as leverage approaches long-term targets.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STE Focus
44.53%
17.90%
2.70%
29.17%
OFIX
68.70%
-9.61%
-5.21%
-5.49%
NUVA
72.60%
7.37%
-0.24%
-288.45%
GKOS
76.60%
-25.50%
-3.20%
-83.73%
HSKA
43.70%
-1.09%
-0.11%
-433.51%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
STERIS enters the QQ3 2025 period with a constructive but currency-impacted growth profile. The company exhibits resilient organic growth, led by Healthcare and AST, supported by a robust backlog and higher-margin mix. Near-term catalysts include continued strength in consumables/services in Life Sciences, improving margins via productivity, and a favorable pricing trajectory. However, investors should remain mindful of FX headwinds (approx. $0.10 per share impact on EPS guidance) and EO-related litigation costs. The 2025 guidance implying ~6% revenue growth and ~6% CC growth with an adjusted EPS of $9.05–$9.15 and ~$700M in free cash flow suggests meaningful value creation if currency dynamics stabilize and shipment timing aligns with demand. On a relative basis, STE’s diversified exposure, steady cash generation, and backlog strength position it to outperform in a rebound, but currency and EO litigation risk necessitate a disciplined watch on near-term earnings volatility. Competitive positioning remains solid within the medical devices space, with margins that can sustain further upside if productivity continues and capital demand remains healthy across its end markets.
Key Investment Factors
Growth Potential
Diversified revenue base across Healthcare, AST, Life Sciences, and Dental; backlog expansion in Healthcare (~$435M) supports near-term revenue visibility. Continued strength in consumables and services (Life Sciences) and robust bioprocessing demand in AST point to embedded growth in recurring revenue streams. Management indicated favorable mix and productivity gains, with price realization contributing to margin expansion in Healthcare and Life Sciences. The endoscopy reprocessing and satellite-infrastructure trends support long-run utilization growth for sterilization and processing equipment.
Profitability Risk
FX volatility remains a material headwind to reported results; EO-related litigation costs add recurring noise to earnings and cash outlays; regulatory and tariff developments could affect cross-border costs and pricing; timing risk in Healthcare Capital Equipment shipments can dampen quarterly cadence despite healthy orders; high goodwill/intangible asset base may mask true earning power in some cycles.
Financial Position
Strong balance sheet with total assets of $10.01B and total liabilities of $3.58B. Cash and equivalents $155.2M; total debt $2.312B; net debt approx. $2.165B; debt to EBITDA ~1.5x; current ratio 2.13x, quick ratio 1.40x. Nine-month free cash flow of $588M supports deleveraging toward the company’s long-run target and fortifies liquidity for R&D, capacity expansion, and potential strategic actions.
SWOT Analysis
Strengths
Diversified segment mix: Healthcare, AST, Life Sciences, and Dental provide multiple growth vectors and recurring revenue (consumables, services).
Strong backlog and order flow in Healthcare (>10% QoQ), supporting near-term revenue visibility.
Margin expansion through favorable mix, pricing, and productivity, with Healthcare and Life Sciences driving the gains.
Solid cash flow generation: nine-month FCF of $588M and cyclically healthy operating cash flow.
Strategic divestiture of CECS improving margins within Life Sciences.
Weaknesses
FX exposure remains a material channel for revenue and earnings volatility; currency headwinds reduced reported growth.
EO regulatory exposure and ongoing litigation costs add uncertainty to earnings and cash outlays.
Timing risk in Healthcare Capital Equipment shipments can depress quarterly revenue even with robust orders.
High level of goodwill and intangible assets creates potential impairment sensitivity in stressed scenarios.
Opportunities
Bioprocessing demand in AST continuing to outpace expectations, enabling services and maintenance growth.
Endoscopy reprocessing and satellite/ambulatory facility growth providing further pull-through for AERs and consumables.
Service and consumables ramp in Life Sciences as capital equipment recovers, aiding margin resilience.
Backlog acceleration and market share gains driven by price and productivity initiatives.
Threats
Currency volatility and potential FX regime changes could erode reported results and complicate guidance.
EO-related litigation risk remains a continuing overhang with potential for cost and distraction.
Tariff/regulatory changes could impact cross-border costs and supply chain strategies.
Macro demand softness or capex pullbacks in healthcare could slow order-to-shipment translation.