STERIS Plc :STE-US: Earnings Analysis: 2016 By the Numbers : July 26, 2016

STERIS Plc reports financial results for the year ended March 31, 2016.

We analyze the earnings along side the following peers of STERIS Plc – Stryker Corporation, Cantel Medical Corp. and Johnson & Johnson (SYK-US, CMN-US and JNJ-US) that have also reported for this period.

Highlights

  • Gross margins narrowed from 41.85% to 41.18% compared to the same period last year, operating (EBITDA) margins now 21.06% from 17.76%.
  • Year-on-year change in operating cash flow of 3.51% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • One-time items weakened operating performance.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2012 2013 2014 2015 2016
Relevant Numbers (Annual)
Revenues 1406.81 1501.9 1622.25 1850.26 2238.76
Revenue Growth (YOY) N/A N/A N/A N/A N/A
Earnings 136.12 159.98 129.44 135.06 110.76
Earnings Growth (YOY) 165.51 17.53 -19.09 4.34 -17.99
Net Margin 9.68 10.65 7.98 7.3 4.95
EPS 2.31 2.72 2.17 2.25 1.56
Return on Equity 16.89 18.08 13.02 12.77 5.39
Return on Assets 9.61 9.99 6.97 6.69 2.97

Access our Ratings and Scores for STERIS Plc

Earnings Growth Analysis

The company’s year-on-year earnings decline was driven by the drop in gross margins from 41.85% to 41.18%. This drop in earnings would have been worse were in not for operational cost control activities, which helped the operating margins (EBITDA margins) improve from 17.76% to 21.06%. For comparison purposes, gross margins were 41.85% and EBITDA margins were 17.76% in the previous period.

Gross Margin Versus EBITDA Margin

Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

STE-US‘s decline in gross margins were offset by some improvements on the balance sheet. The management of working capital, for example, shows progress. The company’s working capital days have fallen to 82.25 days from 84.56 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.

Gross Margin Versus Working Capital Days

Cash Versus Earnings – Sustainable Performance?

STE-US‘s change in operating cash flow of 3.51% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Margins

The expansion in operating (EBIT) margins from 12.81% to 14.64% has also impacted the company’s earnings growth. However, one-time items have been a drag on the operating performance. As a result, the company’s pretax margins contracted from 11.29% to 7.68%.

EBIT Margin Versus PreTax Margin
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for STERIS Plc

Company Profile

STERIS Plc manufactures surgical and other medical supplies. It focuses primarily on healthcare, medical devices, pharmaceuticals, and research. The company operates through the following segments: Healthcare Products, Healthcare Specialty Services, Life Sciences and Applied Sterilization Technologies. The Healthcare Products segment offers infection prevention and procedural solutions for healthcare providers worldwide, including capital equipment and related maintenance and installation services, as well as consumables. The Healthcare Specialty Services segment provides a range of specialty services for healthcare providers including hospital sterilization services, instrument and scope repairs, and linen management. The Life Sciences segment offers capital equipment and consumable products, and equipment maintenance and specialty services for pharmaceutical manufacturers and research facilities. The Applied Sterilization Technologies segment offers a contract sterilization and laboratory services for medical device and pharmaceutical Customers and others. STERIS was founded on October 9, 2014 and is headquartered in Leicester, United Kingdom.

CapitalCube does not own any shares in the stocks mentioned and focuses solely on providing unique fundamental research and analysis on approximately 50,000 stocks and ETFs globally. Try any of our analysis, screener or portfolio premium services free for 7 days. To get a quick preview of our services, check out our free quick summary analysis of STE-US.

Leave a Comment