STERIS — Fiscal 2027 Second Quarter Earnings Summary

Financial Performance:

• Total revenue for the second quarter increased 9% year-over-year to $1.6 billion ($1,588.6 million) from $1.5 billion ($1,460.3 million).
• Constant currency organic revenue growth was 8% for the quarter.
• As reported net income was $213.7 million ($2.19 per diluted share), compared to $191.9 million ($1.94 per diluted share) in the prior year period.
• Adjusted net income was $286.8 million ($2.94 per diluted share), compared to $244.5 million ($2.47 per diluted share) in the prior year period.
• Pre-tax impact of tariff refunds on as-reported results was a benefit of approximately $20 million; gross tariff costs were flat at $15 million.
• Net cash provided by operations for the first six months was $656.1 million, down from $707.8 million in the prior year period.
• Free cash flow for the first six months was $492.5 million, down from $527.7 million in the prior year period, driven by lower working capital contribution partially offset by higher net income.
• Cash and cash equivalents were $531.1 million as of September 30, 2026, compared to $439.6 million as of March 31, 2026.
• Short-term indebtedness increased to $243.1 million from $118.9 million; long-term indebtedness decreased to $1,650.3 million from $1,812.8 million.
• Cash dividends declared per ordinary share outstanding were $0.69 in the quarter, compared to $0.63 in the prior year.
• Repurchases of ordinary shares totaled $215.9 million in the first six months, compared to $111.1 million in the prior year period.

Guidance and Future Outlook:

• Fiscal 2027 consolidated revenue growth expectations remain unchanged: 7-8% as reported and 6-7% constant currency organic.
• Adjusted earnings per diluted share for Fiscal 2027 are raised to a range of $11.35 to $11.55, up from the prior expectation of $11.10 to $11.30.
• The revised earnings outlook includes the benefit of approximately $0.18 from tariff refunds received year-to-date.
• Fiscal 2027 free cash flow is expected to be approximately $800 million.
• Fiscal 2027 cash flows from operating activities are expected to be approximately $1,250 million.
• Fiscal 2027 capital expenditures (purchases of property, plant, equipment, and intangibles) are expected to be approximately $450 million.
• STERIS will provide a revised Fiscal 2027 outlook inclusive of the proposed Xodus Medical acquisition after closing.

Business Segments and Product Lines:

• Healthcare: Revenue grew 9% to $1.1 billion ($1,122.4 million). Constant currency organic growth was 7%. Service revenue grew 10%, consumables revenue grew 10%, and capital equipment revenue increased 4%. Operating income was $269.2 million.
• Applied Sterilization Technologies (AST): Revenue increased 5% to $295.6 million. Constant currency organic growth was 5%. Service revenue grew 5%, while capital equipment revenue declined 21%. Operating income was $132.1 million.
• Life Sciences: Revenue increased 18% to $170.6 million. Constant currency organic growth was 18%. Capital equipment revenue grew 53%, consumables revenue improved 9%, and service revenue grew 5%. Operating income increased to $75.8 million.
• Backlog: Healthcare backlog was $455.5 million (up from $427.5 million); Life Sciences backlog was $93.4 million (down from $113.7 million); Total backlog was $548.9 million (up from $541.3 million).
• Segment Outlook: Healthcare constant currency organic revenue growth outlook remains 6-7%. AST outlook lowered to 6-7% from 7-8%. Life Sciences outlook raised to 9-10% from 6-7%.

Market and Competitive Landscape:

• Management cited solid underlying demand and excellent execution from commercial teams as drivers for performance.
• Life Sciences segment delivered particularly strong performance, leading to raised expectations for the full year.
• The company noted that backlog is becoming a less meaningful indicator of future revenue trends across the business and expects to discontinue disclosure beginning in Fiscal 2028.

Risks and Challenges:

• Operating costs, pricing pressure (including inflation), customer loss, and business disruption could erode profit margins.
• International unrest, military conflicts, economic downturns, currency fluctuations, and cybersecurity events may impact growth and performance.
• Changes in healthcare policy, government reimbursement levels, and regulatory approvals could delay product introductions or affect production.
• Risks associated with the Xodus Medical acquisition include potential failure to receive regulatory approvals, delays, adverse conditions, and failure to realize expected cost savings, tax benefits, or synergies.
• Restructuring charges for the quarter were approximately $25 million, with total charges for the new plan anticipated at $45 million ($10 million cash, $35 million non-cash).
• The company faces risks related to labor-related issues, workforce disruptions, and the inability to recruit or retain personnel.
• Indebtedness levels may limit financial flexibility or increase borrowing costs.

Management Commentary and Tone:

• Dan Carestio, President and CEO, expressed pleasure with the second-quarter performance, highlighting the strong results in Life Sciences.
• Management stated that Fiscal 2027 is shaping up to be another record year for STERIS.
• The tone regarding the updated outlook was confident, citing stable underlying performance and the benefit of tariff refunds.

Other Key Points:

• A new targeted restructuring plan was approved during the quarter, focusing on facility realignment, product rationalization, and organizational realignment primarily in the Healthcare segment.
• The restructuring plan is expected to generate annualized savings of approximately $9 million, with full benefits realized in subsequent fiscal years.
• The company announced a conference call for November 5, 2026, to discuss results.
• The proposed acquisition of Xodus Medical, Inc. is pending regulatory approval and will be included in future outlooks upon closing.
• Non-GAAP measures used include adjusted net income, adjusted EPS, free cash flow, and constant currency organic revenue, which exclude amortization of intangible assets, acquisition costs, restructuring charges, and other non-recurring items.