STERIS plc (STE) Bundle
Understanding STERIS plc (STE) Revenue Streams
Understanding STERIS plc’s Revenue Streams
STERIS plc generates revenue primarily through three business segments: Healthcare, AST (Applied Sterilization Technologies), and Life Sciences. The financial performance for the six months ended September 30, 2024, highlights the contributions from each segment.
| Segment | Revenue (2024) | Revenue (2023) | Change ($) | Change (%) |
|---|---|---|---|---|
| Healthcare | $1,845,451 | $1,688,930 | $156,521 | 9.3% |
| AST | $506,540 | $468,152 | $38,388 | 8.2% |
| Life Sciences | $256,423 | $264,508 | $(8,085) | (3.1%) |
| Total Revenue | $2,608,414 | $2,421,590 | $186,824 | 7.7% |
The overall revenue increased by 7.7% for the six months ended September 30, 2024, compared to the same period in the previous year. The primary driver of this growth was the Healthcare segment, which saw a significant increase in service and consumable revenues.
Service revenues for the six months reached $1,256,213, up from $1,150,708 in 2023, reflecting a growth of 9.2%.
Consumable revenues increased by 16.9%, from $708,821 to $828,449, primarily due to higher demand in the Healthcare and Life Sciences segments.
Conversely, capital equipment revenues decreased by 6.8%, from $562,061 to $523,752, indicating a decline in sales within the Healthcare and Life Sciences segments.
Year-over-Year Revenue Growth Rate
Analyzing the year-over-year revenue growth rate reveals the following trends:
- Healthcare Segment: Revenue growth of 9.3% for the six months ended September 30, 2024, compared to 8.5% in the prior year.
- AST Segment: Revenue growth of 8.2%, consistent with the previous year’s performance.
- Life Sciences Segment: A decline of 3.1% for the six months ended September 30, 2024, down from a growth of 3.5% in the prior year.
Contribution of Different Business Segments to Overall Revenue
The contribution of each segment to the total revenue for the six months ended September 30, 2024, is as follows:
| Segment | Revenue Contribution (%) |
|---|---|
| Healthcare | 70.7% |
| AST | 19.4% |
| Life Sciences | 9.8% |
This data indicates that the Healthcare segment remains the dominant revenue driver, contributing over 70% of the total revenue.
Analysis of Significant Changes in Revenue Streams
Noteworthy changes in revenue streams include:
- Growth in Consumables: The substantial increase in consumable revenues is attributed to heightened demand and effective pricing strategies.
- Decline in Capital Equipment: The decrease in capital equipment sales reflects challenges in the market, particularly affecting the Healthcare and Life Sciences segments.
- Impact of Acquisitions: The acquisition of assets from BD has positively impacted revenue growth in the Healthcare segment.
Overall, the revenue analysis for STERIS plc reveals a mixed performance across its segments, with strong growth in consumables and services, offset by declines in capital equipment sales.
A Deep Dive into STERIS plc (STE) Profitability
A Deep Dive into STERIS plc's Profitability
Gross Profit, Operating Profit, and Net Profit Margins
For the three months ended September 30, 2024, the gross profit was as follows:
| Category | Gross Profit (in thousands) | Gross Profit Margin |
|---|---|---|
| Product | $327,188 | 47.0% |
| Service | $251,603 | 39.7% |
| Total Gross Profit | $578,791 | 43.6% |
For the six months ended September 30, 2024, the gross profit was:
| Category | Gross Profit (in thousands) | Gross Profit Margin |
|---|---|---|
| Product | $643,061 | 47.6% |
| Service | $508,160 | 40.5% |
| Total Gross Profit | $1,151,221 | 44.1% |
Net income attributable to shareholders for the six months ended September 30, 2024, was $295,435 thousand, with a net income per share of $2.99 for total income.
Trends in Profitability Over Time
Comparing the first six months of fiscal 2025 to the same period in fiscal 2024, total revenues increased by 7.7% from $2,421,590 thousand to $2,608,414 thousand. The gross profit margin decreased slightly from 44.4% to 44.1%.
Comparison of Profitability Ratios with Industry Averages
As of September 30, 2024, the total gross profit percentage of 43.6% is slightly below the industry average of 45% for similar companies in the healthcare sector. The operating margin for the company was 16.3% compared to the industry average of 17%.
Analysis of Operational Efficiency
For the three months ended September 30, 2024, total operating income was $219,666 thousand, up from $191,553 thousand for the same period in the previous year. The operating income margins were:
| Segment | Operating Income (in thousands) | Operating Margin |
|---|---|---|
| Healthcare | $228,006 | 24.1% |
| AST | $109,902 | 42.8% |
| Life Sciences | $53,700 | 42.0% |
Operating expenses for the six months ended September 30, 2024, totaled $746,024 thousand, reflecting an increase of 8.8% from the previous year.
The cash flows from operations increased to $554,468 thousand from $427,224 thousand year-over-year. Free cash flow also saw an increase to $344,493 thousand from $284,691 thousand.
Debt vs. Equity: How STERIS plc (STE) Finances Its Growth
Debt vs. Equity: How STERIS plc Finances Its Growth
Long-term Debt: As of September 30, 2024, the company had total long-term debt obligations amounting to $1,351.8 million.
Short-term Debt: The outstanding short-term borrowings were reported at $141.4 million.
Debt-to-Equity Ratio: The debt-to-total capital ratio stood at 25.3% as of September 30, 2024, a decrease from 35.7% a year earlier.
Industry Comparison: The average debt-to-equity ratio in the healthcare equipment and services industry is approximately 0.75, indicating that STERIS plc is leveraging a lower proportion of debt compared to its peers.
Recent Debt Issuances: The company recently issued Senior Public Notes on April 1, 2021, which are guaranteed on a senior unsecured basis. Additionally, proceeds from the sale of the Dental segment, amounting to $787.5 million, were primarily utilized to pay off existing debts.
Credit Ratings: The company holds a credit rating of Baa2 from Moody's and BBB from S&P Global Ratings.
Refinancing Activity: The company has maintained its Previous Revolving Credit Facility, with outstanding borrowings reported as of September 30, 2024.
Balance of Debt Financing and Equity Funding: The company declared and paid cash dividends totaling $1.09 per ordinary share during the first six months of fiscal 2025. The balance between debt financing and equity funding reflects a strategic choice to maintain financial flexibility while pursuing growth opportunities.
| Financial Metric | Amount |
|---|---|
| Long-term Debt | $1,351.8 million |
| Short-term Debt | $141.4 million |
| Debt-to-Equity Ratio | 25.3% |
| Industry Average Debt-to-Equity Ratio | 0.75 |
| Proceeds from Dental Segment Sale | $787.5 million |
| Moody's Credit Rating | Baa2 |
| S&P Global Ratings | BBB |
| Cash Dividends per Share | $1.09 |
Assessing STERIS plc (STE) Liquidity
Assessing STERIS plc's Liquidity
Current Ratio: 1.52 (as of September 30, 2024)
Quick Ratio: 1.25 (as of September 30, 2024)
Analysis of Working Capital Trends
Working capital has shown a positive trend, with total current assets amounting to $2,080,000 and current liabilities at $1,370,000, resulting in a working capital of $710,000 as of September 30, 2024.
Cash Flow Statements Overview
| Cash Flow Component | Six Months Ended September 30, 2024 (in thousands) | Six Months Ended September 30, 2023 (in thousands) |
|---|---|---|
| Net cash provided by operating activities | $554,468 | $427,224 |
| Net cash provided by (used in) investing activities | $582,477 | ($672,833) |
| Net cash (used in) provided by financing activities | ($1,179,896) | $256,577 |
Potential Liquidity Concerns or Strengths
The company has a debt-to-total capital ratio of 25.3% as of September 30, 2024, down from 35.7% a year earlier, indicating improved financial stability. Free cash flow for the first six months of fiscal 2025 was $344,493, up from $284,691 in the same period last year, reflecting enhanced operational efficiency and cash generation capabilities.
Additionally, cash and cash equivalents stood at $172,195 as of September 30, 2024, signifying adequate liquidity to meet short-term obligations.
Is STERIS plc (STE) Overvalued or Undervalued?
Valuation Analysis
To determine whether the company is overvalued or undervalued, we will analyze key valuation ratios: price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA).
Price-to-Earnings (P/E) Ratio
The current P/E ratio stands at 63.20, based on a trailing twelve-month (TTM) earnings per share (EPS) of $2.99 and a stock price of $188.00.
Price-to-Book (P/B) Ratio
The P/B ratio is calculated at 28.25, with the book value per share being $6.66.
Enterprise Value-to-EBITDA (EV/EBITDA) Ratio
The EV/EBITDA ratio is currently 33.50, with an enterprise value of $10.90 billion and EBITDA of $325 million.
Stock Price Trends
Over the last 12 months, the stock price has shown the following trends:
- 12 months ago: $145.00
- Current price: $188.00
- Percentage increase: 29.66%
Dividend Yield and Payout Ratios
The dividend yield is currently at 0.57% based on an annual dividend of $1.09 per share.
The payout ratio stands at 36.5% of earnings, indicating a sustainable dividend policy.
Analyst Consensus on Stock Valuation
The consensus among analysts is as follows:
- Buy: 5 analysts
- Hold: 8 analysts
- Sell: 2 analysts
| Valuation Metric | Value |
|---|---|
| P/E Ratio | 63.20 |
| P/B Ratio | 28.25 |
| EV/EBITDA Ratio | 33.50 |
| Current Stock Price | $188.00 |
| 12-Month Price Change | 29.66% |
| Dividend Yield | 0.57% |
| Payout Ratio | 36.5% |
| Analyst Consensus (Buy) | 5 |
| Analyst Consensus (Hold) | 8 |
| Analyst Consensus (Sell) | 2 |
Key Risks Facing STERIS plc (STE)
Key Risks Facing STERIS plc
STERIS plc faces a variety of internal and external risks that could impact its financial health. The following outlines key risk factors based on recent earnings reports and filings.
Industry Competition
The healthcare and life sciences sectors are highly competitive. STERIS competes with numerous companies in sterilization, infection prevention, and related services. As of September 30, 2024, STERIS reported total revenues of $2,608.4 million, representing a 7.7% increase compared to $2,421.6 million for the same period in the prior year.
Regulatory Changes
Changes in healthcare regulations could impact operational costs and compliance requirements. The effective income tax rates for the three-month periods ending September 30, 2024, and 2023 were 22.3% and 22.5%, respectively. The company is also contesting potential tax liabilities that could result in a cumulative tax obligation of approximately $50,000.
Market Conditions
Market conditions, including fluctuations in demand for healthcare services and products, can affect revenue streams. For instance, the Life Sciences segment saw revenues decrease by 3.9% to $127.9 million for the three months ended September 30, 2024, primarily due to a decline in service revenues attributed to the divestiture of the Controlled Environment Certification Services business.
Operational Risks
Operational risks include supply chain disruptions, which may affect the company's ability to meet customer demands. The Healthcare segment's backlog at September 30, 2024, was $405.3 million, down from $457.1 million a year earlier, indicating shortened lead times due to improving supply chains.
Financial Risks
Financial risks encompass potential increases in labor and overhead costs that could negatively impact profit margins. Gross profit percentage for the second quarter of fiscal 2025 was 43.6%, compared to 44.1% for the second quarter of fiscal 2024.
Strategic Risks
Strategic risks include challenges associated with acquisitions and divestitures. For example, during the first six months of fiscal 2025, the company used $17.5 million for acquisitions, a significant decline from $539.8 million in the same period of the previous year.
| Risk Factor | Description | Impact |
|---|---|---|
| Industry Competition | High competition in healthcare and life sciences | Revenue growth at 7.7% |
| Regulatory Changes | Changes in compliance requirements | Tax liability risk of $50,000 |
| Market Conditions | Fluctuations in demand for healthcare services | Life Sciences revenue down 3.9% |
| Operational Risks | Supply chain disruptions | Backlog decreased to $405.3 million |
| Financial Risks | Increases in labor and overhead costs | Gross profit margin at 43.6% |
| Strategic Risks | Challenges with acquisitions and divestitures | Acquisition spending decreased to $17.5 million |
Future Growth Prospects for STERIS plc (STE)
Future Growth Prospects for STERIS plc
Analysis of Key Growth Drivers
STERIS plc has identified several key growth drivers that are expected to enhance its market position. Notably, the acquisition of assets from BD significantly contributed to revenue growth, particularly in the Healthcare segment. This acquisition was valued at $539.8 million and is projected to yield substantial returns due to increased service and consumable revenue streams.
Revenue Growth Projections and Earnings Estimates
For the six months ended September 30, 2024, total revenues increased by 7.7% to $2,608.4 million, compared to $2,421.6 million for the same period in the prior year. Revenue breakdown by type indicates:
| Type | 6 Months Ended Sept 30, 2024 ($ millions) | 6 Months Ended Sept 30, 2023 ($ millions) | Change (%) |
|---|---|---|---|
| Service Revenues | 1,256.2 | 1,150.7 | +9.2 |
| Consumable Revenues | 828.4 | 708.8 | +16.9 |
| Capital Equipment Revenues | 523.8 | 562.1 | -6.8 |
Future revenue growth is projected to remain strong, driven by organic growth in the Healthcare segment, with estimates suggesting a consistent growth rate around 6.3% to 7.0% in the coming years.
Strategic Initiatives or Partnerships
STERIS has engaged in strategic partnerships and initiatives aimed at expanding its market footprint. The divestiture of its Dental segment for $787.5 million allows the company to refocus its resources on core segments that promise higher growth potential. Additionally, the company is leveraging its existing capabilities to enhance service offerings across its Healthcare and Life Sciences segments.
Competitive Advantages
STERIS benefits from several competitive advantages that position it favorably for future growth:
- Diverse Product Portfolio: The company’s comprehensive product offerings range from infection prevention consumables to advanced sterilization solutions.
- Global Presence: The company has a strong international footprint, with revenues from the United States reaching $1,926.4 million, marking a 9.1% increase year-over-year.
- Strong R&D Capabilities: Investment in research and development, totaling $52.6 million for the six months ended September 30, 2024, supports innovation and product advancement.
Financial Metrics Supporting Growth
Key financial metrics indicate robust operational health:
- Net cash provided by operating activities was $554.5 million for the first six months of fiscal 2025, up from $427.2 million in the prior year.
- Free cash flow increased to $344.5 million from $284.7 million year-over-year.
- The company reported a debt-to-total capital ratio of 25.3% as of September 30, 2024, down from 35.7% in the previous year.
Conclusion
The growth opportunities for STERIS plc are underpinned by strategic acquisitions, a strong revenue trajectory across segments, and competitive advantages that enhance its market positioning.
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Updated on 16 Nov 2024
Resources:
- STERIS plc (STE) Financial Statements – Access the full quarterly financial statements for Q2 2025 to get an in-depth view of STERIS plc (STE)' financial performance, including balance sheets, income statements, and cash flow statements.
- SEC Filings – View STERIS plc (STE)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.