STERIS plc (STE) Q2 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reflects strong financial performance with a 15% increase in EPS and robust free cash flow. The company anticipates 8-9% revenue growth and maintains strong growth across segments. Positive factors include increased EBIT margins and solid growth in healthcare and AST services. Despite headwinds from tariffs and inflation, the guidance remains optimistic, supported by strategic expansions and stable demand. The Q&A session reinforced management's confidence in sustained growth, though some responses lacked detail. Given these factors, a positive stock price movement is expected.
Key Financial Performance
Total as-reported revenue Grew 10% year-over-year, driven by volume and 210 basis points of price.
Constant currency organic revenue Grew 9% year-over-year, driven by volume and 210 basis points of price.
Gross margin Increased 60 basis points year-over-year to 44.3%, driven by positive price and productivity, offsetting inflation and tariff costs.
EBIT margin Increased 90 basis points year-over-year to 23.1%, driven by operating expense leverage.
Adjusted effective tax rate Increased to 24.5% year-over-year, driven by changes in discrete item adjustments and geographic mix.
Net income from continuing operations $244.5 million for the quarter.
Adjusted earnings per diluted share $2.47, a 15% increase year-over-year.
Capital expenditures $180.1 million for the first half of fiscal 2026.
Depreciation and amortization $241.1 million for the first half of fiscal 2026.
Total debt $1.9 billion at the end of the quarter.
Gross to EBITDA Approximately 1.2x at quarter end.
Free cash flow $527.7 million for the first half of fiscal 2026, driven by increased earnings and improvements in working capital.
Healthcare constant currency organic revenue Grew 9% year-over-year, with service revenue growing 13%, consumables growing 10%, and capital equipment revenue growing 4%. EBIT margins increased 100 basis points to 25.1%, driven by volume, pricing, productivity, and restructuring program benefits, offsetting tariffs and inflation.
AST constant currency organic revenue Grew 7% year-over-year, with services growing 13% and offset by declines in capital equipment revenue. EBIT margins increased 250 basis points to 45.3%, driven by volume, pricing, and less capital equipment in the mix, offsetting labor and energy costs.
Life Sciences constant currency organic revenue Increased 12% year-over-year, driven by a 39% growth in capital equipment shipments, 9% growth in service revenues, and 7% growth in consumables. Margins declined 70 basis points due to tariffs and inflation.
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Operating Highlights
Healthcare capital equipment revenue: Increased 4% in the quarter with a backlog of over $400 million. Orders were up 3% year-to-date but down slightly in the second quarter.
Life Sciences capital equipment revenue: Increased 39% in the quarter, with a backlog up over 50% to $114 million.
Healthcare service revenue: Grew 13% in the second quarter, continuing its streak of outperformance.
Healthcare consumables revenue: Grew 10% in the second quarter.
AST services revenue: Grew 13% in the quarter, driven by stable medical device volumes, bioprocessing demand, and currency.
Life Sciences service revenue: Grew 9% in the quarter.
Life Sciences consumables revenue: Increased 7% in the quarter.
Gross margin: Increased 60 basis points to 44.3%, driven by positive price and productivity, offsetting inflation and tariff costs.
EBIT margin: Increased 90 basis points to 23.1% of revenue, driven by operating expense leverage.
Free cash flow: Increased to $527.7 million for the first half of fiscal 2026, driven by higher earnings and working capital improvements.
Fiscal 2026 revenue growth outlook: Increased to 8%-9% as reported, with constant currency organic revenue growth expected at 7%-8%.
Earnings outlook: Raised to a range of $10.15 to $10.30 per diluted share.
Free cash flow outlook: Increased by $30 million to $850 million for fiscal 2026.
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Risk or Challenges
Tariffs and Inflation: Tariffs and inflation have negatively impacted margins in the Healthcare and Life Sciences segments, with a $12 million pretax tariff impact in the quarter.
Capital Equipment Revenue Declines: Anticipated declines in capital equipment revenue, particularly in the AST segment, pose a challenge to revenue growth.
Increased Tax Rate: The adjusted effective tax rate increased to 24.5%, driven by changes in discrete item adjustments and geographic mix, which could impact net earnings.
Labor and Energy Costs: Increases in labor and energy costs have been noted, particularly affecting the AST segment.
Currency Impact: Currency fluctuations have a lower favorable impact than previously anticipated, which could affect revenue growth.
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Guidance & Outlook
Revenue Growth: The company anticipates approximately 8% to 9% as-reported revenue growth for fiscal 2026, reflecting about 100 basis points of favorable currency impact. Constant currency organic revenue growth is expected to be 7% to 8%, an increase of 100 basis points from the prior outlook.
Segment Growth: All three segments are expected to grow 7% to 8% on a constant currency organic basis for the year. AST services are projected to grow 9% to 10%, offset by anticipated declines in capital equipment.
Earnings Outlook: The company has increased its earnings outlook to a range of $10.15 to $10.30 per diluted share for fiscal 2026. EBIT margins are expected to improve by 10 to 20 basis points, partially offset by a 50 basis point increase in the anticipated effective tax rate of approximately 24%.
Free Cash Flow: The outlook for free cash flow has been increased by $30 million to $850 million for fiscal 2026. Capital expenditures remain unchanged at approximately $375 million.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:What drove the second consecutive quarter of double-digit growth in AST services and the sustainability of trends?
A:Stable volume from medtech customers, recovery in bioprocessing, and investments in expansions over the last 4 years facilitated growth. Management is confident in a 9%-10% growth outlook despite minor noise in customer volume shifts.
Q:What were the headwinds affecting operating margins, and how much did they offset margin expansion?
A:Tariffs and inflation (labor and material) were the headwinds. Tariffs offset margins by 90 basis points, and material and labor inflation offset by 130 basis points.
Q:What is driving strong growth in Healthcare services?
A:Strong volumes in traditional rents, IMS repair business, and instrument processing. Double-digit growth has been sustained for 5-6 quarters, driven by price increases due to labor cost justification. Growth is expected to slow slightly as labor costs normalize.
Q:How is the X-ray modality contributing to growth?
A:Management is excited about X-ray but does not break out specific technology contributions. X-ray is part of the broader radiation technology portfolio, including gamma and e-beam.
Q:What is the outlook for Healthcare subsegments like consumables, equipment, and service?
A:Service is expected to grow the most, followed by consumables, with capital equipment growth being a wildcard due to timing. The company has a $400 million backlog in Healthcare capital.
Q:Why has free cash flow been strong in the first half of the year, and is the guidance conservative?
A:Stronger earnings, improvements in working capital, and faster collections contributed to strong cash flow. Management attributes this to timing and remains cautious in guidance.
Q:What is driving growth in the Healthcare business across geographies and customer types?
A:Growth is strong across geographies, particularly in the U.S., with recovery in other regions. No specific customer type or product line was highlighted as a standout.
Q:What is the current capacity situation in AST, and how is it being addressed?
A:Capacity expansion is a long process (2-3 years). Several expansions have been completed, are in process, or are planned. The company has been steadily adding capacity for 8 years and is well-positioned globally.
Q:Is reshoring in Life Sciences benefiting the company?
A:Reshoring and expansion of manufacturing capacity by pharma customers are beneficial, particularly for capital equipment. However, the impact is more anecdotal than substantial.
Q:What is the state of single-use scopes in the Healthcare business?
A:Single-use scopes are gaining traction in small-diameter applications (e.g., hysteroscopy, bronchoscopes) due to high break frequency and repair costs. Large-diameter scopes for colonoscopies remain robust and cost-effective, with limited focus from disposable scope manufacturers.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the contribution of X-ray technology to growth, citing the complexity of breaking out technologies. Additionally, while discussing reshoring in Life Sciences, the response was more anecdotal and lacked substantial evidence.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
Accounting Officer
CFO Chief
Chief Accounting
Communications today
EBIT Healthcare
Instructions conference
Officer pleasure
Orders date
President Investor
Sciences return
Service revenue
Services device
ability expectation
adjustment mix
backlog Orders
balance element
basis AST
capital remark
category Service
caution VP
comparison outlook
conference Vice
consumables Capital
currency basis
currency shift
date EBIT
decline capital
definition press
demand currency
element outlook
equipment Services
equipment backlog
equipment comparison
equipment mix
expectation balance
expectation remark
flow start
improvement outperformance
increase basis
increase change
increase labor
point volume
service decline
tariff inflation
volume pricing
STE Transcript
STERIS plc (STE) Q4 2026 Earnings Call Transcript
Positive5-12
The earnings call highlights strong financial performance with expanded EBIT margins and double-digit EPS growth. The Q&A session reveals operational improvements and strategic moves like the $1 billion buyback and tuck-in M&A, suggesting future growth. Despite some challenges, such as tough comps and weather impacts, management's optimistic guidance and strategic investments in high-margin areas indicate a positive outlook. The sentiment is further bolstered by the commitment to shareholder returns and operational efficiencies, supporting a positive stock price movement prediction.
STERIS plc (STE) Q3 2026 Earnings Call Transcript
Positive2-5
The earnings call reveals solid financial performance, with increased revenue and improved EBIT margins in key segments. Despite some margin declines due to tariffs, the overall outlook remains optimistic, supported by strong growth in Life Sciences and AST. The Q&A section highlights effective mitigation strategies for tariffs and positive market trends, such as capacity expansions. The increase in earnings and free cash flow guidance further supports a positive sentiment. However, the lack of major M&A and conservative cash flow guidance slightly temper the outlook, leading to a positive but not strong positive prediction.
STERIS plc (STE) Q2 2026 Earnings Call Transcript
Positive11-6
The earnings call reflects strong financial performance with a 15% increase in EPS and robust free cash flow. The company anticipates 8-9% revenue growth and maintains strong growth across segments. Positive factors include increased EBIT margins and solid growth in healthcare and AST services. Despite headwinds from tariffs and inflation, the guidance remains optimistic, supported by strategic expansions and stable demand. The Q&A session reinforced management's confidence in sustained growth, though some responses lacked detail. Given these factors, a positive stock price movement is expected.
STERIS plc (STE) Q1 2026 Earnings Call Transcript
Positive8-7
The earnings call indicates strong financial performance with increased net income, free cash flow, and dividends. Despite tariff challenges, the company maintains growth expectations and reports strong order growth across segments. The Q&A reveals confidence in market positions and future prospects, with no major concerns raised by analysts. The positive sentiment is supported by organic revenue growth, margin improvements, and strategic cash management plans, suggesting a likely stock price increase in the short term.
STE Report
Frequently Asked Questions
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They are generated by a specialized financial-language model trained exclusively on 15+ years of earnings transcripts. The model extracts financial figures, guidance, and tone with 97%+ accuracy and is regularly validated against human analysts. The full raw transcript always remains available for verification.
