STERIS Q4 Earnings Call Highlights

Key Points

• STERIS posted record fiscal 2026 results, with revenue up 9% and constant-currency organic growth of 7%, while adjusted EPS rose 10% to $10.17. The company also generated nearly $983 million in free cash flow and ended the year with leverage well below its target range.
• Fourth-quarter margins were pressured by tariffs and inflation, even though revenue grew 7% and organic revenue rose 5%. Incremental tariffs hit the quarter by about $10 million, but pricing gains helped offset some of the cost pressure.
• Management expects continued growth in fiscal 2027, guiding for 6% to 7% constant-currency organic revenue growth and adjusted EPS of $11.10 to $11.30. STERIS also plans margin expansion, continued buybacks, and investment in a new sterilization manufacturing plant in Ohio.

STERIS NYSE: STE reported a stronger fiscal 2026 overall despite a lighter fourth quarter, with executives pointing to record annual revenue, resilient procedure demand and continued pricing gains, while also outlining expectations for mid- to high-single-digit growth in fiscal 2027.

Senior Vice President and CFO Karen Burton said fourth-quarter revenue grew 7% as reported, while constant currency organic revenue increased 5%, driven by volume and 230 basis points of pricing. Gross margin was 44%, down 30 basis points from the prior year, as positive pricing helped offset higher tariffs and inflation.

Fourth-quarter EBIT margin was 24.2% of revenue, which Burton said was a high for fiscal 2026, though it was 60 basis points below the year-earlier quarter due primarily to inflation and tariffs. Incremental tariffs affected the quarter by about $10 million, below the company’s expectations because of lower volumes in materials and products sourced from outside the United States.

Adjusted net income from continuing operations was $278.3 million, and adjusted diluted earnings per share from continuing operations were $2.83, up 3% from the prior year. Burton said the lower margin and higher tax rate limited earnings growth in the quarter. The adjusted effective tax rate rose to 25.4% from 23.5% a year earlier, driven mainly by geographic mix and unfavorable discrete items.

Record fiscal 2026 results

President and CEO Dan Carestio said fiscal 2026 was “another record year” for STERIS, with revenue growth of 9% and constant currency organic revenue growth of 7%. Adjusted earnings per share rose 10% to $10.17, even as tariffs reduced margins by 80 basis points. Total company revenue was approximately $6 billion, and adjusted net income topped $1 billion.

“This is an exciting time to be at STERIS, and we expect to continue to grow the business mid to high single digits organically over time and leverage that to deliver double-digit bottom-line growth,” Carestio said.

Burton said free cash flow for fiscal 2026 was $982.9 million, with improvement from the prior year driven primarily by higher earnings. Capital expenditures totaled $369 million, while depreciation and amortization were $486.5 million. STERIS ended the year with $1.9 billion in total debt and gross debt-to-EBITDA of about 1.2 times, below its target range of 2.0 to 2.5 times.

Segment performance led by Healthcare growth

Carestio said the Healthcare segment grew 9% as reported and 8% on a constant currency organic basis. Service revenue grew 12%, consumables increased 7% and capital equipment rose 6%. Healthcare ended the year with capital equipment backlog just under $400 million, and Carestio said orders were up 2% in the fourth quarter. The segment generated $4 billion in revenue and $1 billion in operating income for the year.

The Applied Sterilization Technologies segment, or AST, grew 10% as reported and 7% on a constant currency organic basis. Carestio said the result was lighter than expected, citing second-half softness and a slower fourth quarter for services due to severe U.S. snowstorms early in the calendar year. AST services grew 11% as reported and about 8% on a constant currency organic basis for the year. The segment surpassed $1 billion in revenue and exceeded $500 million in operating profit.

Life Sciences grew 9% as reported and 7% on a constant currency organic basis. Carestio said the segment benefited from 15% capital equipment growth as customers resumed capital investment after the prior year’s downturn. Consumables grew 8%, while services improved 5%. Life Sciences ended the year with capital equipment backlog just under $100 million and exceeded $250 million in operating profit for the first time.

Fiscal 2027 outlook includes growth and margin expansion

STERIS expects fiscal 2027 as-reported revenue growth of 7% to 8%, with constant currency organic revenue growth of 6% to 7%. The outlook assumes about 200 basis points of price. By segment, the company expects Healthcare and Life Sciences to grow 6% to 7% on a constant currency organic basis, while AST is expected to grow 7% to 8%.

Carestio said the company is taking a more conservative view on AST to start the year because MedTech customers continue to manage inventory levels carefully and because the segment faces difficult comparisons in the first half. In response to an analyst question, he said STERIS saw “some inventory reduction across the broader customer segment” in MedTech, even as procedure rates and large public MedTech customer revenue reports continued to indicate underlying demand.

Fiscal 2027 adjusted earnings per share are expected to be $11.10 to $11.30, representing 9% to 11% growth over fiscal 2026. EBIT margins are expected to expand by approximately 50 basis points at the high end of the outlook, assuming tariff spending is flat year over year and the company benefits from incentive compensation normalization.

Burton said fiscal 2026 incremental tariffs were $46 million, bringing total tariff spending to $60 million to $65 million. The company is modeling the same total tariff spending range for fiscal 2027 and is not including any tariff refunds in guidance. She also said the company is assuming a 25% adjusted effective tax rate in fiscal 2027, partly reflecting withholding taxes associated with moving cash across borders to fund capital allocation priorities.

Capital allocation includes buybacks, acquisitions and new plant

Carestio said STERIS increased its quarterly dividend by $0.06 to $0.63 in fiscal 2026, marking its 20th year of dividend growth. The company also used $225 million for share repurchases and announced that its board approved a new $1 billion buyback authorization. Going forward, Carestio said STERIS expects to use excess cash for consistent buybacks in the range of $200 million to $300 million annually.

The company completed two tuck-in acquisitions in Healthcare that are expected to contribute about $45 million of combined revenue in fiscal 2027. Carestio said one transaction vertically integrated a supplier for MEDglas Walls, extending STERIS’s reach from the U.S. to global markets. The other added a family of gastrointestinal products, expanded the company’s offering and improved its channel.

STERIS also plans fiscal 2027 capital expenditures of $375 million and free cash flow of $850 million. Carestio said capital spending priorities are shifting as the company nears completion of its multiyear X-ray expansion in AST. In fiscal 2027, STERIS will begin building a new sterility assurance manufacturing plant in Mentor, Ohio, intended to consolidate existing U.S. production into a state-of-the-art manufacturing center of excellence. The company expects to invest about $60 million over two years and have the plant operational by the end of calendar 2027.

Carestio said the facility is intended to support long-term growth in a high-growth, high-margin business. He said the project is driven by capacity needs and an opportunity to create a nearly fully automated manufacturing facility.

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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