STERIS Plc :STE-US: Earnings Analysis: Q3, 2017 By the Numbers : February 8, 2017

STERIS Plc reports financial results for the quarter ended December 31, 2016.

We analyze the earnings along side the following peers of STERIS Plc – Hill-Rom Holdings, Inc., Stryker Corporation, Thermo Fisher Scientific Inc., Johnson & Johnson, CONMED Corporation and 3M Company (HRC-US, SYK-US, TMO-US, JNJ-US, CNMD-US and MMM-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 646.77 million, Net Earnings of USD -5.00 million.
  • Gross margins widened from 38.52% to 40.70% compared to the same period last year, operating (EBITDA) margins now 13.03% from 20.26%.
  • Year-on-year change in operating cash flow of 301.26% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings declined although operating margins improved from 13.01% to 13.03%.

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

2016-12-31 2016-09-30 2016-06-30 2016-03-31 2015-12-31
Relevant Numbers (Quarterly)
Revenues (mil) 646.77 646.42 638.38 690.28 618.69
Revenue Growth (%YOY) 4.54 31.95 45.12 37.6 30.73
Earnings (mil) -5 40.42 48.4 57.74 20.05
Earnings Growth (%YOY) -124.92 365.25 99.25 39.47 -47.42
Net Margin (%) -0.77 6.25 7.58 8.36 3.24
EPS -0.06 0.47 0.56 0.67 0.26
Return on Equity (%) -0.69 5.34 6.36 7.66 3.93
Return on Assets (%) -0.4 3.08 3.64 4.32 2.09

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Market Share Versus Profits

Revenues History
Earnings History

STE-US‘s change in revenue this period compared to the same period last year of 4.54% 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 0.06% and earnings by -112.36% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus

Earnings Growth Analysis

The company’s earnings declined year-on-year largely because of the increases in operating costs. Its operating margins (EBITDA margins) went from 20.26% to 13.03%. This decline in earnings would have been worse except for the fact that the company showed improvement in gross margins, from 38.52% to 40.70%. For comparison, gross margins were 38.32% and EBITDA margins 21.73% in the immediate last period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost

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 gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 84.85, compared to last year’s level of 78.05 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich

Cash Versus Earnings – Sustainable Performance?

STE-US‘s change in operating cash flow of 301.26% 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

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings

Margins

Despite an overall improvement in operating (EBIT) margins, the company’s earnings fell. EBIT margins went from 13.01% to 13.03%. The decline in earnings appears to be largely because of one-time items. Pretax margins declined from 4.76% to 2.39%.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

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Company Profile

STERIS Plc engages in the manufacture of surgical and other medical supplies. It 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. The company was founded on October 9, 2014 and is headquartered in Leicester, United Kingdom.

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