01—Abstract
Summary
Summary of the 10-Q filed November 7, 2023. Cited figures are marked; the original filing is the authoritative source.
STERIS plc's 10-Q for the quarter ended September 30, 2023 shows revenue growth and higher operating income compared with the prior-year quarter, which included a $490.6 milliona Dental goodwill impairment.
Total revenues were $1,342.4 millionb for the three months ended September 30, 2023, up 11.8% from $1,200.5 million, and $2,626.9 million for the six months, up 11.5%. Management attributes the increases to organic growth, primarily in Healthcare, from higher volume and pricing, plus added volume from the BD surgical instrumentation and sterilization container asset acquisition completed August 2, 2023 for $539.8 million. Operating income was $185.9 million for the quarter versus an operating loss of $(306.4) million a year earlier, and net income attributable to shareholders was $115.3 million, or $1.16 per diluted share, versus a net loss of $(315.3) million.
Profitability pressures remained. Gross profit percentage slipped to 44.2% from 44.3% in the second quarter, as pricing and mix gains were offset by productivity, material and labor inflation. SG&A rose 17.8% in the quarter, driven by compensation, professional fees and bad debt expense, and interest expense increased $10.8 millionc on higher floating-rate debt.
Total debt rose to $3,437.2 milliond from $3,078.7 million at March 31, 2023, and the debt-to-total capital ratio reached 35.7%. Cash flow from operations was $427.2 million and free cash flow was $284.7 million for the first six months, both up from the prior year, and the company paid $0.99 per share in dividends year to date. Segment results were mixed.
Healthcare revenue rose 18.7% in the quarter to $870.1 million with operating income up 23.4%. AST revenue grew only 1.2%, with operating income flat as higher labor and energy costs offset pricing. Dental revenue fell 4.9% on lower volume from customer destocking, and its operating income declined 12.6%.
Life Sciences revenue grew 5.8%, though its operating income rose just 3.4%. The company has $500 million authorized under a new share repurchase program but made no repurchases in the first half of fiscal 2024.
02—Key points
Key Highlights
- Total revenues rose 11.8% to $1,342.4 million in the quarter and 11.5% to $2,626.9 million for the six months, driven mainly by Healthcare.
- Operating income was $185.9 million in the quarter versus an operating loss of $(306.4) million a year earlier, which included a $490.6 million Dental goodwill impairment.
- Net income attributable to shareholders was $115.3 million ($1.16 diluted EPS) in the quarter, compared with a net loss of $(315.3) million.
- Gross profit percentage declined to 44.2% from 44.3%, as pricing and mix benefits were more than offset by productivity and inflation costs.
- The August 2, 2023 acquisition of BD surgical instrumentation and sterilization container assets cost $539.8 million, financed with credit facility borrowings.
- Total debt increased to $3,437.2 million from $3,078.7 million; the debt-to-total capital ratio was 35.7%, and interest expense rose to $36.9 million in the quarter.
- Free cash flow was $284.7 million for the first six months, up from $138.2 million, and the company paid $0.99 per share in dividends year to date.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, Steris kept $0.09.
- Revenue$1.24B100.0%
- Cost of revenue−$692.0M55.9%
- Gross profit$546.2M44.1%
- Operating costs−$354.7M28.6%
- Operating income$191.6M15.5%
- Interest, other & tax−$76.2M6.2%
- Net income$115.3M9.3%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed November 7, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $1.24B$1.09B | +13.5% |
| Cost of Revenue | $691.98M$608.63M | +13.7% |
| Gross Profit | $546.23M$482.31M | +13.3% |
| R&D Expenses | $26.27M$24.93M | +5.4% |
| SG&A Expenses | $328.43M$323.19M | +1.6% |
| Operating Expenses | $354.68M$838.75M | −57.7% |
| Operating Income | $191.55M-$306.42M | +162.5% |
| Interest Expense | $36.94M$26.12M | +41.4% |
| Net Income | $115.32M-$315.29M | +136.6% |
| EPS (Basic) | $1.17$-3.15 | +137.1% |
| EPS (Diluted) | $1.16$-3.15 | +136.8% |
| Shares Outstanding (Basic) | 98.78M99.97M | −1.2% |
| Shares Outstanding (Diluted) | 99.41M99.97M | −0.6% |
05—Questions
Frequently Asked Questions
Why did STERIS swing from a large loss to a profit in the quarter?
The prior-year quarter included a $490.6 million goodwill impairment on the Dental segment. Excluding that charge, operating income still improved on higher Healthcare volume and pricing, plus added volume from the BD asset acquisition, with income tax expense of $33.8 million compared with a benefit of $(17.8) million a year earlier.
How is the company's debt position changing?
Total debt rose to $3,437.2 million at September 30, 2023 from $3,078.7 million at March 31, 2023, mainly from $391.0 million of net credit facility proceeds used to fund the BD acquisition. The debt-to-total capital ratio rose to 35.7% from 33.6% at March 31, 2023, and interest expense increased $10.8 million in the quarter on higher floating-rate debt.
Which segments drove growth, and which lagged?
Healthcare drove growth, with revenue up 18.7% to $870.1 million and operating income up 23.4%. AST revenue rose only 1.2% and its operating income was flat, while Dental revenue fell 4.9% on customer destocking and its operating income declined 12.6%. Life Sciences revenue grew 5.8%, though its operating income rose only 3.4%.
Are there pressures on margins or costs?
Yes. Gross profit percentage fell to 44.2% from 44.3% as productivity, material and labor inflation outweighed pricing. SG&A rose 17.8% in the quarter, driven by compensation, incentive and benefit costs, professional fees and bad debt expense.
What is the company doing with its share capital?
The Board authorized a new share repurchase program of up to $500 million on May 3, 2023, but the company made no repurchases under it through September 30, 2023. Share-based compensation activity obtained 57,161 ordinary shares for $9.2 million during the first six months, and cash dividends of $0.99 per share were paid.
06—Continue