STERIS plc (STE) Earnings & Analysis

Latest quarter

STERIS reported Q2 FY2027 revenue of $1.6 billion, exceeding the consensus by 1.54%, although both reported revenue and the estimate rounded to $1.6 billion. Adjusted earnings per share were $2.94, above the $2.67 consensus estimate.

The company’s filing attributed revenue growth to higher volumes in Healthcare and Life Sciences and higher pricing across all three segments. Healthcare revenue rose 8.6%, while Applied Sterilization Technologies (AST) revenue increased 5.0%; Life Sciences grew 17.7%, including a 53.0% increase in capital equipment revenue.

STERIS reported gross margin of 44.7%, compared with 44.2% a year earlier. Its filing said pricing, tariff refunds and mix helped the margin, partly offset by materials, labor and restructuring costs. Operating margin rose to 18.5% from 18.2%.

The company reported quarterly free cash flow of $289.0 million, up from $201.2 million a year earlier. For the first six months, however, the filing showed free cash flow declined to $492.5 million from $527.7 million as cash was used to build inventory.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Dan Carestio said Healthcare demand included continued growth in the gastrointestinal business. He attributed consumables growth to customer consumption, share gains, endoscopy procedure growth and, to a lesser extent, an acquisition. Healthcare capital equipment orders grew 1% in the quarter, he said, with backlog reaching $456.0 million.

Asked about procedure volumes, Carestio said some highly elective procedures had been deferred, but the company’s data from sterile processing departments showed tray counts and consumption rising. He said customers faced economic stress, particularly in North America, while demand remained high.

CFO Karen Burton said volume and pricing drove constant-currency organic revenue growth. She said approximately $20 million in tariff refunds added 130 basis points to the year-over-year change in adjusted gross margin. Burton added, “Underlying margins were down slightly as favorable price was more than offset by inflation.”

Carestio said Healthcare’s EBIT margin fell as inflation, lower productivity and accelerated investments outweighed improvements in volume and price. Burton said the additional restructuring plan covered facility, product and organizational changes and was expected to generate approximately $9 million in annualized savings, with some realized in fiscal 2028.

In Life Sciences, Carestio said reshoring and localization were benefiting the business. When asked about customer expansion plans, he said orders and chemistry inquiries were beginning to materialize, but one order exceeding $10 million had made a particular difference to the quarter and would not recur each quarter.

On AST capacity, Carestio said the network had room to handle increased demand, though newer facilities were still ramping up and contributed lower margins than mature sites. He also said the planned acquisition of Exodus Medical would give STERIS a clinical sales force and a regular reason to visit operating rooms.

Guidance

Carestio said STERIS raised its FY2027 adjusted earnings-per-share outlook to $11.35 to $11.55 from $11.10 to $11.30, reflecting second-quarter performance and lower interest. He said the outlook includes approximately 18 cents per share from tariff refunds received year to date.

STERIS reduced its AST constant-currency organic revenue growth expectation to six to seven percent from seven to eight percent. Carestio said the company raised its Life Sciences outlook to 9-10% from 6-7%, reflecting first-half performance and a return to more normalized growth in the second half. He said the outlook excludes Exodus Medical and will be updated after the acquisition closes.