STERIS Plc reports financial results for the quarter ended June 30, 2016.
We analyze the earnings along side the following peers of STERIS Plc – Hill-Rom Holdings, Inc., Stryker Corporation, Invacare Corporation, Thermo Fisher Scientific Inc., Owens & Minor, Inc., Ecolab Inc., CONMED Corporation, 3M Company and Johnson & Johnson (HRC-US, SYK-US, IVC-US, TMO-US, OMI-US, ECL-US, CNMD-US, MMM-US and JNJ-US) that have also reported for this period.
- Summary numbers: Revenues of USD 638.38 million, Net Earnings of USD 48.40 million.
- Gross margins narrowed from 41.92% to 40.65% compared to the same period last year, operating (EBITDA) margins now 11.54% from 17.08%.
- Year-on-year change in operating cash flow of 95.16% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
- Earnings growth due to contribution of one-time items.
The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:
|Relevant Numbers (Quarterly)|
|Revenue Growth (%YOY)||6.61||5.87||30.73||37.6||45.12|
|Earnings Growth (%YOY)||-1||-71.98||-47.42||39.47||99.25|
|Net Margin (%)||5.52||1.77||3.24||8.36||7.58|
|Return on Equity (%)||8.94||3.17||3.93||7.66||6.36|
|Return on Assets (%)||4.52||1.55||2.09||4.32||3.64|
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Market Share Versus Profits
STE-US‘s change in revenue this period compared to the same period last year of 45.12% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that STE-US is holding onto its market share. Also, for comparison purposes, revenues changed by -7.52% and earnings by -16.17% compared to the immediate last period.
Earnings Growth Analysis
The company’s earnings rose year-on-year. But this growth has not come as a result of improvement in gross margins or any cost control activities in its operations. Gross margins went from 40.65% to 41.92% for the same period last year, while operating margins (EBITDA margins) went from 11.54% to 17.08% over the same time frame.
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.
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 82.56 days from 94.16 days for the same period last year. This leads Capital Cube to conclude that the gross margin decline is not altogether bad.
Cash Versus Earnings – Sustainable Performance?
STE-US‘s change in operating cash flow of 95.16% 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.
The company’s operating (EBIT) margins contracted from 11.99% to 11.54%. In spite of this, the company’s earnings rose. This was influenced primarily by one-time items, which improved pretax margins from 8.77% to 9.86%.
Access our Ratings and Scores for STERIS Plc
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.
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