STERIS NYSE: STE reported first-quarter fiscal 2027 revenue growth and higher earnings, while maintaining its full-year outlook and outlining a $600 million investment in a new chemistry manufacturing, research and distribution complex in North Carolina.
Total reported revenue increased 7% from the prior-year quarter, while constant-currency organic revenue rose 6%, driven by volume growth and 190 basis points of pricing, Chief Financial Officer Karen Burton said. Adjusted diluted earnings per share increased 11% to $2.59, and adjusted net income totaled $253.4 million.
Gross margin rose 70 basis points year over year to 46%, supported by pricing and productivity improvements that were partly offset by inflation. EBIT margin increased 100 basis points to 23.8% of revenue, aided by gross-margin gains, favorable currency and operating-cost discipline.
The company recorded $14 million in gross tariff costs during the quarter, excluding refunds, compared with $12 million a year earlier. STERIS received $4 million in tariff refunds, resulting in a $2 million year-over-year benefit from net tariffs, Burton said. The refunds were recorded in corporate results rather than allocated to operating segments.
Healthcare Growth Led by Services and Consumables
Healthcare segment constant-currency organic revenue grew 6% in the quarter. Services revenue increased 10%, while consumables revenue rose 9%, benefiting from higher customer consumption, share gains and procedure growth in endoscopy, President and CEO Dan Carestio said.
Healthcare capital equipment revenue rose 1%, with growth affected by shipment timing. However, capital equipment orders increased 4%, and ending backlog rose to $444 million. Carestio said the company expects solid full-year growth in the capital equipment business, citing market traction and the effect of prior capital sales on demand for related consumables, chemistry products, sterility assurance and services.
Healthcare EBIT margin expanded 60 basis points to 24.8%. Volume, pricing, productivity and favorable mix were partly offset by inflation, business investments and tariffs.
During the question-and-answer session, Carestio said the company had not seen a slowdown in hospital procedure activity affecting its business, highlighting particularly strong growth in ambulatory surgery centers and endoscopy. He said STERIS has about one-third of its Healthcare franchise tied to endoscopy-related activity.
Carestio attributed elevated endoscopy activity in part to a greater focus on earlier detection and screening for colon cancer. He said the company was encouraged by current growth but could not say whether the higher level would be sustained.
AST and Life Sciences Performance
Applied Sterilization Technologies, or AST, posted 5% constant-currency organic revenue growth, including 6% growth in services. Carestio said service volumes remained light as customers continued to reduce existing inventory, though the company expects growth to improve during the second half as comparisons become easier and destocking conditions normalize.
AST EBIT margin declined 60 basis points to 48%. Additional pricing was more than offset by higher depreciation and slightly lower productivity. Management reaffirmed expectations for 7% to 8% organic growth in the segment for the full fiscal year.
Life Sciences constant-currency organic revenue increased 8%. Capital equipment revenue rose 17%, consumables increased 8% and services grew 2%. Backlog was approximately flat year over year at $110 million.
Life Sciences EBIT margin fell 140 basis points to 42.1%, as pricing and volume growth were more than offset by unfavorable productivity and inflation. Carestio said broader manufacturing localization, including activity outside the United States, could create opportunities for the segment as pharmaceutical customers expand or duplicate production footprints.
North Carolina Chemistry Center
STERIS announced plans to invest $600 million in a Formulated Chemistry Center of Excellence in North Carolina, its largest-ever investment in a single manufacturing site. The project will include two facilities totaling 600,000 square feet for manufacturing, research and development, and distribution.
The facility will produce infection-prevention and contamination-control chemistries used by healthcare and pharmaceutical customers. Carestio said the company’s healthcare and life sciences formulated chemistry businesses together generate more than $700 million in revenue.
The center is expected to begin operating in phases within two to three years, starting with distribution. Once complete, STERIS expects to move work from chemistry manufacturing and distribution sites in St. Louis, Missouri, and Plymouth, Minnesota, and close those facilities.
The company expects pretax restructuring charges of roughly $55 million to $70 million related to the consolidation, including about $40 million to $50 million of cash expenditures and $15 million to $20 million of non-cash charges. Less than $10 million of the charges are expected to be recorded in fiscal 2027.
Carestio said the facility initially is expected to be cost neutral but should generate greater leverage over time through combined volumes, automation and lower labor requirements. The company expects the project to generate a return on invested capital above 10% within three to five years of opening.
Outlook and Capital Allocation
Management maintained its fiscal 2027 outlook for reported revenue growth of 7% to 8% and constant-currency organic growth of 6% to 7%. The adjusted earnings-per-share outlook also remained unchanged at $11.10 to $11.30, representing projected growth of 9% to 11% from fiscal 2026.
Capital expenditures are now expected to total approximately $450 million in fiscal 2027, including about $75 million tied to the North Carolina project. STERIS expects the project to add about $350 million in capital spending during fiscal 2028 and the remaining $175 million in fiscal 2029.
Free cash flow is now expected to reach $800 million for fiscal 2027, with first-quarter performance helping offset the increased capital spending. First-quarter free cash flow was $279.6 million, down from $326.5 million a year earlier, primarily due to a lower working-capital contribution.
The company ended the quarter with $1.9 billion in total debt and gross debt-to-EBITDA of about 1.1 times. It repurchased $100 million of shares during the quarter, leaving $900 million under its authorization, and raised its quarterly dividend by $0.06 to $0.69, marking its 21st consecutive year of dividend increases.
About STERIS (NYSE:STE)
STERIS Corporation NYSE: STE is a global provider of infection prevention, contamination control and procedural products and services for the healthcare, life sciences, pharmaceutical and medical device industries. The company develops, manufactures and supports a broad portfolio of equipment and consumables designed to reduce risk of infection, maintain sterile environments and support critical clinical and manufacturing procedures.
Its offerings include sterilization and decontamination systems, instrument washers and washers-disinfectors, endoscope reprocessing solutions, surgical equipment and procedural disposables, and contamination-control products for cleanrooms and laboratories.
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