Exchange: NYSE | Sector: Healthcare | Industry: Medical Devices
Q1 2026
Published: Aug 6, 2025
Earnings Highlights
Revenue of $1.39B up 8.7% year-over-year
EPS of $1.79 increased by 21.8% from previous year
Gross margin of 50.0%
Net income of 177.40M
"Constant currency organic revenue grew 8% for the first quarter with growth across all categories. Healthcare capital equipment revenue increased 6% with underlying order growth of 14% and ending backlog just over $400 million. EBIT Margins for Healthcare increased 10 basis points to 24.2%." - Daniel A. Carestio, President and CEO
STERIS plc (STE) QQ1 2026 Results — Robust Q1 2026 Upside with Strong Cash Flow, Backlog Growth, and Upbeat Guidance in Healthcare Devices
Executive Summary
STERIS reported a solid start to fiscal 2026 (QQ1) with total as-reported revenue up 9% and constant currency organic revenue up 8%, supported by volume growth and price. Gross margin rose 20 basis points to 45.3% in the quarter, and EBIT margin expanded 50 basis points to 22.8% as pricing gains and productivity offset inflation and tariff costs. Net income from continuing operations was $231.2 million, and adjusted EPS was $2.34, up 15% year over year. The company generated strong operating cash flow ($420 million) and free cash flow ($326 million), enabling dividend growth (20th consecutive year, +10% to $0.63/quarter) and ongoing deleveraging efforts (gross debt to EBITDA ~1.2x). Management highlighted a favorable mix in earnings with tariffs largely offset by favorable currency, though tariff headwinds were raised and tariff guidance was increased for the year. Management also announced a CFO transition to Karen (Executive VP and CFO-designate) with Mike Tokich transitioning out and will remain available as adviser, underscoring strong succession planning. The backdrop remains favorable for STERIS given persistent backlog across all segments, a constructive bioprocessing/Life Sciences backdrop, and a robust consumables and services growth trajectory. The updated outlook contemplates 8-9% as-reported revenue growth ( ~200 bps currency tailwind) and 6-7% constant currency organic revenue growth, with free cash flow guidance raised to $820 million for fiscal 2026. Investors should monitor tariff evolution, FX movements, ongoing cost containment, and the rate of backlog conversion into revenue throughout the year.
Key Performance Indicators
Revenue
1.39B
QoQ: -6.04% | YoY:8.72%
Gross Profit
695.10M
49.97% margin
QoQ: -2.39% | YoY:21.38%
Operating Income
247.80M
QoQ: 14.64% | YoY:33.56%
Net Income
177.40M
QoQ: 21.78% | YoY:22.01%
EPS
1.79
QoQ: 20.95% | YoY:21.77%
Revenue Trend
Margin Analysis
Key Insights
Revenue: $1.3911 billion (+8.72% YoY; -6.04% QoQ)
Gross Profit: $695.1 million (+21.38% YoY; -2.39% QoQ)
Operating Income: $247.8 million (+33.56% YoY; +14.64% QoQ)
Net Income: $177.4 million (+22.01% YoY; +21.78% QoQ)
EPS (GAAP): $1.79; EPS (diluted): $1.79; Weighted shares: ~98.4 million
Financial Highlights
- Revenue: $1.3911 billion (+8.72% YoY; -6.04% QoQ)
- Gross Profit: $695.1 million (+21.38% YoY; -2.39% QoQ)
- Operating Income: $247.8 million (+33.56% YoY; +14.64% QoQ)
- Net Income: $177.4 million (+22.01% YoY; +21.78% QoQ)
- EPS (GAAP): $1.79; EPS (diluted): $1.79; Weighted shares: ~98.4 million
- EBITDA: $247.8 million; EBITDA margin: ~17.8%
- Operating Margin: 17.81%
- Cash from Ops: $420 million; Free Cash Flow: $326.4 million
- Cash and cash equivalents: $279.7 million; Net Debt: $1.623 billion; Debt: $1.903 billion; Total Assets: $10.405 billion
- Backlog: Healthcare ≈$400+ million; AST ≈$111 million; Life Sciences backlog growth
- Capex: $93.6 million; D&A: ~$0 (non-specified in report)
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
1.39B
8.72%
-6.04%
Gross Profit
695.10M
21.38%
-2.39%
Operating Income
247.80M
33.56%
14.64%
Net Income
177.40M
22.01%
21.78%
EPS
1.79
21.77%
20.95%
Key Financial Ratios
Net Income vs. Revenue
Expense Breakdown
Management Commentary
- Growth momentum and mix: Management emphasized broad-based growth across all segments with strong order intake, particularly in Healthcare and AST, and solid consumables growth in Life Sciences. The company highlighted a backlog just over $400 million in Healthcare, with AST Services backlog up meaningfully, signaling revenue visibility ahead of the year.
- Margin and profitability: The CFO noted gross margin expansion in the quarter driven by price and productivity, offsetting tariffs and inflation. Dan Carestio highlighted EBIT margins by segment: Healthcare at 24.2% (up 10 bps), AST at 48.6% (up 150 bps), and Life Sciences margins up 260 bps due to favorable mix and productivity.
- Tariffs and currency: Management discussed tariff headwinds, noting roughly $9 million tariff impact within earnings and a broader tariff outlook that increased guidance by about $15 million in the quarter. They also called out about 200 bps of favorable currency tailwinds supporting the revenue guidance and offsetting tariff costs.
- Cash generation and capital allocation: The company delivered operating cash flow of $420 million and free cash flow of $326 million in Q1, with capex of $93.6 million. Dividend growth remains a priority (20th straight year, +10% to $0.63/quarter). The company plans continued share buybacks offsetting dilution and intends to pursue M&A opportunistically given a strong balance sheet.
- Strategic commentary on markets: Dan Carestio noted continued strength in bioprocessing and containment of volatility in hospital capital cycles; he described a relatively predictable backlog trajectory and commented on ASC outsourcing and the broader implications for capital equipment and consumables demand. On EO sites (ethylene oxide), he stated STERIS did not seek regulatory relief as facilities were already ahead of compliance, viewing this as a potential differentiator against peers.
Constant currency organic revenue grew 8% for the first quarter with growth across all categories. Healthcare capital equipment revenue increased 6% with underlying order growth of 14% and ending backlog just over $400 million. EBIT Margins for Healthcare increased 10 basis points to 24.2%.
— Daniel A. Carestio, President and CEO
We now anticipate approximately 8% to 9% revenue growth, which reflects about 200 basis points of favorable currency. Constant currency organic revenue growth is unchanged at 6% to 7%. Free cash flow for fiscal 2026 is now guided to $820 million.
— Daniel A. Carestio, President and CEO
Forward Guidance
- Revenue: 8-9% as-reported growth in FY2026, supported by approximately 200 basis points of favorable foreign currency translation. Constant currency organic revenue growth is guided to be 6-7% for FY2026.
- Segment outlook: Each segment is expected to grow constant currency organic revenue by 6-7% in FY2026, with AST outsized in absolute growth given notable early strength, and Life Sciences benefiting from consumables and increasing backlog.
- Margin and taxes: Management maintains an effective tax rate of ~23.5% and contemplates flat EBIT margins at the high end of the range, given ongoing price, productivity improvements, and currency effects.
- Free cash flow and capex: Free cash flow guidance increased by $50 million to $820 million for FY2026; capex remains at $375 million.
- Tariffs and FX: Tariff impact expected to be around $45 million for FY2026; FX tailwinds help offset tariff costs. Investors should monitor ongoing tariff policy developments, currency movements, and any shifts in healthcare policy/regulation that could influence hospital procurement and capital expenditure cycles.
- Key risks to watch: tariff volatility, regulatory developments in EO sterilization, hospital reimbursement dynamics (e.g., OB3 and Medicaid exchanges), and the pace at which backlog converts to revenue, particularly across Life Sciences and bioprocessing equipment.
- Our assessment: The guidance appears achievable given a supportive backlog, diversified revenue mix, and strong cash generation, though elevated tariff exposure and regulatory headwinds warrant monitoring. The company’s balance sheet flexibility and dividend commitment enhance the investment thesis, especially for a cash-flow-generative, diversified med-tech supplier.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
STE Focus
49.97%
N/A
N/A
N/A
OFIX
62.80%
-25.20%
-11.60%
-3.01%
NUVA
71.90%
2.98%
-0.12%
-532.61%
GKOS
77.20%
-19.40%
-2.38%
-76.80%
HSKA
43.90%
-14.80%
-2.34%
-25.94%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
STERIS enters fiscal 2026 with a constructive growth trajectory underpinned by a diversified, high-margin mix, strong cash generation, and backlog-driven visibility. The 8-9% as-reported revenue growth guidance and 6-7% organic growth, supported by FX tailwinds and price/productivity benefits, provide a solid foundation for earnings expansion. The company’s ability to translate backlog into revenue, its resilient gross and operating margins by segment, and a track record of dividend growth and capital allocation (including M&A opportunities and opportunistic buybacks) support a favorable long-term investment thesis. However, investors should monitor tariff dynamics, currency movements, and U.S. healthcare policy changes that could influence hospital capex and reimbursement, as these factors could modulate the pace of backlog conversion and the margin flow through to the bottom line. Overall, with a robust balance sheet, strong FCF, and a diversified franchise in infection prevention and sterilization solutions, STERIS presents a compelling cash-generative med-tech equity with steady, multi-year growth potential.
Key Investment Factors
Growth Potential
- Backlog conversion across Healthcare and AST supports near-term revenue visibility.
- 6-7% constant-currency organic growth in each segment, with ongoing strength in consumables in Life Sciences and robust services growth (Healthcare Services +13% in Q1).
- Positive mix and productivity improving margins while capitalizing on higher volumes and pricing power, with 8-9% reported revenue growth aided by currency tailwinds.
Profitability Risk
- Tariff exposure and policy shifts (tariffs on steel, aluminum, copper, and EU tariffs) could pressure margins; guidance includes $45 million tariff impact.
- Currency volatility impacting reported results; though favorable FX offset tariffs, sensitivity remains.
- Regulatory and reimbursement changes in the U.S. (OB3, Medicaid exchanges) could affect hospital capex and procedure volumes over time.
- Lifecycle and capital expenditure cycles in the Life Sciences segment, which can be lumpy and depend on customer capex cycles.
Financial Position
- Solid balance sheet with total assets of $10.405B and total stockholders’ equity of $6.9699B.
- Net debt of $1.623B and gross debt of $1.903B; net debt-to-EBITDA around 1.2x, indicating modest leverage for an industrial med-tech company.
- Strong operating cash flow ($420M) and free cash flow ($326M) in Q1, supporting the increased FY2026 free cash flow target of $820M and dividend growth (20th consecutive year).
SWOT Analysis
Strengths
Diversified, multi-segment portfolio (Healthcare, AST, Life Sciences, Dental) reducing overdependence on a single end-market
Strong free cash flow generation and dividend growth track record (20th consecutive year of increases)
Healthy backlog providing revenue visibility (Healthcare backlog just over $400m; Life Sciences backlog growth)
Solid cash position and modest leverage (net debt to EBITDA ~1.2x)
Operational improvements and price-to-cost productivity supporting margins
Global footprint and services network enabling lifecycle management and capital equipment installation/maintenance
Weaknesses
Tariff exposure and regulatory risk that can affect margins (tariffs embedded in FY guidance)
Regulatory and reimbursement headwinds in the U.S. (OB3, Medicaid) that could impact hospital spending and CAPEX cycles
Some segments may experience cycle-related volatility (Life Sciences capex cycles) and lumpiness in orders
High goodwill/intangible asset base creating sensitivity to impairment if demand slows
Opportunities
Strength in bioprocessing and aseptic processing demand driving Life Sciences consumables and equipment spend
ASC (ambulatory surgery center) expansion trend benefiting capital equipment and sterilization workflows
Potential M&A activity to accelerate scale and expand service capabilities with strong balance sheet support
Reshoring of pharmaceutical manufacturing and increased biopharma activity could sustain capital expenditures in AST and Life Sciences
Continued share repurchases offsetting dilution and improving earnings per share
Threats
Regulatory changes affecting EO sterilization and compliance timelines (competitive landscape impact)
Tariff policy and currency volatility creating uncertainties in reported results
Competitive intensity and potential pricing pressure in capital equipment and service offerings
Macro risk from healthcare policy changes influencing hospital budgets and capex cycles