STERIS(STE) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenue for the third quarter grew by 6%, with constant currency organic revenue also increasing by 6%, driven by volume and a 240 basis point price increase [8] - Gross margin increased by 90 basis points year-over-year to 44.6% [8] - EBIT margin decreased by 10 basis points to 23.3% compared to the previous year's third quarter [9] - Net income from continuing operations was $229 million, with adjusted earnings per diluted share increasing by 11$2.32 [10][11] - Free cash flow for the first nine months was $588 million, on track to meet the full-year guidance of approximately$700 million [12] Business Line Data and Key Metrics Changes - Healthcare constant currency organic revenue grew by 7%, driven by strong recurring revenue streams, while capital equipment revenue declined by 5% due to shipment timing [13][14] - AST constant currency organic revenue grew by 10%, with services growing by 10% and a slight decline in capital equipment shipments [15] - Life Sciences Group saw a 1% decline in constant currency organic revenue, with margins improving to 42.6%, benefiting from favorable mix pricing and the divestiture of CECS [17] Market Data and Key Metrics Changes - Orders in the healthcare segment grew over 10%, reflected in a $435 million healthcare backlog [14] - The company noted that while order growth remains robust, shipments were delayed due to customer project delays [14] Company Strategy and Development Direction - The company is tightening its revenue and earnings guidance for 2025, now expecting approximately 6$10 million in additional litigation expenses year-over-year due to ongoing legal matters related to ethylene oxide [9][20] - Capital expenditures for the first nine months totaled $299 million, with depreciation and amortization at$354 million [11][12] Q&A Session Summary Question: Concerns about Healthcare Capital Equipment - Management indicated that delays in shipments are due to customer readiness rather than hesitancy, with strong order growth still observed [26] Question: Trends in Bioprocessing Demand - Management noted optimism in bioprocessing demand, suggesting that the market is recovering from previous inventory challenges [30] Question: Potential Impact of Tariffs - Management is taking a wait-and-see approach regarding potential tariff reintroductions, emphasizing ongoing analysis of the situation [35] Question: Sustainability of Margin Performance - Management expressed confidence in the sustainability of margin improvements, driven by favorable volume, mix, and pricing [53] Question: Update on Ethylene Oxide Cases - Management confirmed that the retrial for the first ethylene oxide case is scheduled for May, with no additional cases added beyond what was previously disclosed [58] Question: Customer Concerns about Policy Changes - Management reported no significant concerns from customers regarding potential policy changes, with strong order growth in both healthcare and life sciences [71]