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01/10 16:01
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
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.
Total as reported revenue Grew 9% year-over-year. Constant currency organic revenue grew 8%, driven by volume and 230 basis points of price.
Gross margin Increased 20 basis points year-over-year to 45.3%. Positive price and productivity outpaced inflation and tariff costs.
EBIT margin Increased 50 basis points year-over-year to 22.8% of revenue, due to improvement in gross margin and operating expense leverage.
Adjusted effective tax rate Increased to 23.5% year-over-year, driven primarily by geographic mix and changes in discrete item adjustments.
Net income from continuing operations $231.2 million, with adjusted earnings per diluted share from continuing operations at $2.34, a 15% improvement year-over-year.
Capital expenditures $94 million for the first quarter of fiscal 2026.
Depreciation and amortization $119 million for the first quarter of fiscal 2026.
Total debt $1.9 billion at the end of the quarter, with gross debt to EBITDA at 1.2x.
Free cash flow $327 million for the first quarter of fiscal 2026, driven by an increase in earnings and improvements in working capital.
Dividend Increased by 10% to $0.63 per quarter, marking the 20th consecutive year of dividend increases.
Healthcare constant currency organic revenue Grew 8% year-over-year, with capital equipment revenue up 6%, service revenue up 13%, and consumables revenue up 5%. EBIT margins increased 10 basis points to 24.2%, offsetting tariffs and inflation.
AST constant currency organic revenue Grew 10% year-over-year, with services revenue up 12%. EBIT margins increased 150 basis points to 48.6%, offsetting increases in energy and labor costs.
Life Sciences constant currency organic revenue Increased 4% year-over-year, with consumables revenue up 8%, services revenue up 3%, and capital equipment revenue flat. Margins increased 260 basis points due to favorable mix, pricing, and productivity.
Healthcare Segment Growth: Constant currency organic revenue grew 8% in Q1, with growth across all categories. Healthcare capital equipment revenue increased 6%, with underlying order growth of 14% and backlog over $400 million. Service revenue grew 13%, and Consumables grew 5%.
AST Segment Growth: Constant currency organic revenue grew 10% in Q1, with 12% growth in Services. Services benefited from currency, bioprocessing demand, and stable medical device volumes.
Life Sciences Segment Growth: Constant currency organic revenue increased 4% in Q1, driven by 8% growth in Consumables and 3% growth in Services. Capital equipment revenue was flat, but backlog increased over 50% to $111 million.
Revenue Growth: Total as-reported revenue grew 9% in Q1, with constant currency organic revenue up 8%, driven by volume and pricing.
Margin Improvements: Gross margin increased 20 basis points to 45.3%, and EBIT margin increased 50 basis points to 22.8% due to improved gross margin and operating expense leverage.
Free Cash Flow: Free cash flow for Q1 was $327 million, driven by increased earnings and working capital improvements.
Debt Reduction: Total debt reduced to $1.9 billion, with gross debt to EBITDA at 1.2x.
CFO Transition: Long-serving CFO Michael Tokich announced his transition, with Karen (a long-time team member) set to take over. Michael will remain as a special financial adviser to ensure a smooth transition.
Dividend Increase: The company announced its 20th consecutive year of dividend increases, with a 10% rise to $0.63 per quarter.
Tariff Costs: The company faces $45 million in tariff costs for fiscal 2026, an increase of $15 million from the previous quarter. This could impact profitability, particularly in the Healthcare segment.
Energy and Labor Costs: Increases in energy and labor costs are noted, particularly affecting the AST segment. These rising costs could pressure margins if not offset by pricing and volume growth.
Currency Fluctuations: Significant shifts in forward currency rates have led to adjustments in revenue outlook. While favorable currency offsets some costs, ongoing volatility could pose risks to financial performance.
Healthcare Segment Tariffs and Inflation: The Healthcare segment is impacted by tariffs and inflation, which are partially offset by pricing and productivity improvements. Persistent inflationary pressures could challenge margin expansion.
Capital Equipment Revenue in Life Sciences: Capital equipment revenue in the Life Sciences group was flat, despite a 50% increase in backlog. This stagnation could indicate challenges in converting backlog to revenue.
Revenue Growth: STERIS anticipates approximately 8% to 9% revenue growth for fiscal 2026, reflecting about 200 basis points of favorable currency. Constant currency organic revenue growth is expected to remain at 6% to 7%.
Segment Growth: Each segment is expected to grow constant currency organic revenue in the range of 6% to 7% for fiscal 2026. AST's revenue and growth in the first quarter were stronger than anticipated, but the outlook for the year remains unchanged.
Earnings Outlook: The earnings outlook for fiscal 2026 is unchanged at $9.90 to $10.15 per diluted share, reflecting $45 million in tariff costs, an increase of $15 million over the previous quarter. Favorable foreign currency is expected to offset this increase.
Free Cash Flow: The outlook for free cash flow has been increased by $50 million to $820 million for fiscal 2026.
Capital Expenditures: CapEx remains unchanged at $375 million for fiscal 2026.
Dividend Increase: Last week, we announced our 20th consecutive year of dividend increases with a 10% increase to $0.63 per quarter as we continue to prioritize consistent dividend growth.
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.
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.
The earnings call summary presents a mixed picture: strong growth in AST and healthcare segments, but declines in life sciences and capital equipment revenue. The Q&A highlighted optimism in bioprocessing demand but revealed management's vague responses on tariffs and future margins, creating uncertainty. Flat profit margins and expected legal expenses are concerns. Overall, the positive and negative factors offset each other, leading to a neutral sentiment.
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