Q1 2026 STERIS PLC Earnings Call

Good day and welcome to the Steris PLC first quarter 2026 conference. Call. All participants will be in listen-only mode.

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please note this event is being recorded. I would now like to turn the conference over to Julie winter investor relations. Please go ahead.

Thank you, Alan and good morning everyone.

Speaking on today's call will be Michael Tokich, our President and CFO, and Dan Carestio, our President and CEO. I do have a few words of caution before we open for comments from management.

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Some of the statements made during this review are or maybe considered for looking statements, many important factors could cause actual results to differ materially from those within the forward-looking statements, including without limitation, those risk factors described in stairs as Securities filings.

The company does not undertake to update or revise, any forward-looking statements as a result of new information or future events or developments.

There says SEC filings are available through the company and on our website.

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As well as reconciliations between gaap and non-gaap financial measures.

And gaap financial measures are presented during this call with the Intensive providing greater transparency to supplemental financial information used by management and the board of directors in their financial analysis and operational decision-making.

With those captions, I will hand the call over to Mike. Thank you Julian. Good morning everyone. It is once again my pleasure to be with you this morning to review, the highlights of our first quarter performance from continuing operations.

For the first quarter. Total, as reported Revenue grew 9% consecrate, your organic Revenue, grew 8% in the quarter driven by volume, as well as 230 basis points of price.

Gross margin for the quarter. Increased 20 basis points compared with prior year to 45.3%.

Positive price and productivity outpaced inflation and tariff costs.

Keep it margin increased 50 basis points to 22.8% of Revenue, compared with the first quarter of last year, due to the Improvement in gross margin and operating expense Leverage.

The Trusted effective tax rate in the quarter was 23.5%. The year-over-year increase was driven primarily by Geographic mix and changes in discrete item adjustments.

That income from continuing operations in the quarter, was 231.2 Million, adjusted earnings per diluted. Share from continued operations. Was $2.34 a 15% Improvement compared to the prior year?

Capital expenditures for the first quarter of fiscal 2026 totaled, 94 million, and appreciation, and admiration totaled, 119 million

We continue to pay down debt during the quarter, ending with $1.9 billion in total debt.

Gross debt to Eva at quarter end was 1.2 times.

Pre-cast flow for the first quarter of fiscal. 2026 was 327 million. A very strong start to the fiscal year. Driven by an increase in earnings and improvements in working capital.

Last week, we announced our 20th consecutive year of dividend increases with a 10% increase to 63 cents per quarter, as we continue to prioritize consistent dividend growth.

Before I close, I'm sure that you have all read last night's release regarding our CFO transition. I want to take a moment to thank all of you for your continued support, over the last 17 years. Actually, 18 years if you count the time I served as interim CFO.

The time the company has grown significantly during that time in terms of Revenue and profitability.

Being able to provide, not only financial leadership, but also to provide strategic oversight throughout this significant period of growth has been a tremendous honor and accomplishment for me.

Steris is on solid financial footing and has a proven financial team in place, which makes now the right time to transition the CFO position to Karen.

Karen and I have worked together for the past 20 years to Steris and we have been working behind the scenes for many years preparing her for this role.

I am confident in, not only her financial ability but also her leadership capability to lead this great company into the future. I will be around for a while, as as as a special financial adviser and look forward to supporting a smooth transition.

With that, I will now turn the call over to Dan for his remarks.

Thanks, Mike. And good morning everyone. Thank you for joining us to hear more about the start to fiscal 2026 and are updated Outlook.

Before we jump into the numbers, I do want to take a moment to recognize Mike for, as long and successful career as CFO Mike's leadership, and financial Acumen have been essential to Our Success.

Under his leadership. The CFO we have grown meaningfully in all aspects, Revenue earnings and market cap, and have completed over 8. 80 m&a transactions, he is Bill a strong Global team, including Karen.

And we are well prepared for this transition.

Moving on to our performance, Mike covered the quarter at a high level. So I will add some commentary on our segments. Starting with Health Care, constant currency, organic Revenue, grew 8% for the first quarter with growth. All categories, Healthcare Capital Equipment Revenue, increased 6% for the quarter with underlying order growth of 14% and ending backlog, just over 400 million

Service continued, its streak of outperformance growing 13% in the first quarter, and consumables grew 5% compared with a strong first quarter last year.

Basis points to 24.2% with, volume pricing, positive productivity, and restructuring program benefits, offsetting tariffs, and inflation.

Turning to as constant currency, organic Revenue, grew 10% for the quarter, with 12%, growth in Services Services benefited from currency. Bioprocessing demand and stable medical device volumes.

Ebit margins for as were 48.6% up, 150 basis points from the first quarter of last year as the additional volume and pricing were able to more than offset increases in energy and labor.

Constant currency organic Revenue increased 4% for the life sciences group in the quarter. German once again by strong growth and growth and consumables of 8%.

Services Revenue, grew 3%. Capital Equipment Revenue was about flat with backlog up over 50% to 111 million

Margins increased 260 basis points benefiting from favorable, mix.

Pricing and productivity.

From an earnings perspective, we grew the bottom line, 15% in the quarter to 2 dollars and 34% per diluted share included. In that number is approximately 9 million dollars of tariff impact, which primarily impacted our Healthcare segment.

Turning to our outlook for fiscal 2026. As noted in the press release. We are updating our outlook for, as reported Revenue due to a significant shift in forward currency rates. We now anticipate approximately 8 to 9% Revenue growth, which reflects about 200 basis points of favorable currency.

Constant currency, organic Revenue. Growth is unchanged at 6 to 7%.

Each segment is expected to grow constant currency, organic Revenue in the range of 6 to 7% for fiscal 2026.

As2, A's Revenue growth. In the first quarter was stronger than anticipated.

Despite the strong start, we are maintaining our outlook for the year at this time.

Our own earnings Outlook is also unchanged at $9.90 to $10.15 which now reflects 455 million in tariff costs. An increase of 15 million over the last quarter. Fortunately, favorable, foreign currency will offset that increase.

For your modeling purposes. At the high end of our earnings range. We would expect even margins to be about flat. No change is is anticipated to our effective tax rate of approximately 23.5%.

Based on the strong, start to the year. We are increasing our outlook for free cash flow by 50 million to 820 million for fiscal 2026 capex remains unchanged at 375 million

Thank you. Thank you.

Started.

We will now begin the question and answer session. To ask a question, you may press star and then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw it, please press star. At this time, we will pause momentarily to assemble our roster.

Our first question today comes from Brett fish fin of KeyBank. Please go ahead.

Hey guys, thank you very much for taking the questions and good morning. Um, congrats on the um, announcement. Mike, I just wanted to ask first on the revised tariff estimate. If you could just give a little bit more detail on specifically what drove the increased expectation, whether it was a change in policy or, you know, something you were seeing as you, you know, continue to do more of the analysis. Thank you very much.

Yeah, but this is Mike, uh, a couple things, drove the increase. Uh, first is the additional tariffs that we have seen on Metals, uh, both steel and aluminum went from 25%, uh, to 50%.

Copper went from zero uh to 50% and the EU uh changed uh from 10% to 15%. Remember when we guided in mid-may, we had more clarity than most. Um, so these are changes since then, and that's why we are increasing and not decreasing our tariff exposure.

Leans toward just conservatism after, you know, just 1 quarter of the year or if you're seeing anything, you know, changing, um, that would make you expect, you know, certain quarters to maybe be below that range. Thank you very much again.

Yeah, Brad this Dan, I would say it's General conservatism. There's, you know, there's some moving Parts going on in Medtech with reflect is some uh, changing positions of manufacturing from our customers. And at at this point we feel very confident in the numbers that we're putting forward and that Things fill out a little better, maybe we do a little better.

Our next question comes from Maco of Stevens.

Please go ahead.

Hey, good morning. Thank you for taking my questions and congrats Mike. Um, I think just first, uh, I'd love to get your take on what's what you're seeing within the bio processing Market, uh, just

I think last year you commented on some a slower start to FY 26. So I just want to get an update there.

Yeah, sure. Hi. This is Dan. Um, you know, I would say that, you know, for the last year or so, we've sort of seen some fits and starts and, um, you know, in terms of volumes coming through the facilities, it's been pretty consistent now for I would say the last 4 or 5 months and back to. Uh, what we would see is a normal trajectory off of a reset base. Um, so we, we believe at this point, it's it's fairly predictable. Um,

You know, that's the Assumption there is that we don't have customers over building inventory, which is hard to fully understand, uh, but nonetheless it's been much more consistent, uh, in in recent periods.

Appreciate that. And then also, I noticed the life science segment saw a pretty strong increase in the segment segments, backlogs sequentially. So, uh, I was just kind of curious to get your sense of what's driving, the, the increase their, what your expectations are for the rest of the year.

Yeah. You know a year ago and you know life science is a far more kind of runs on these 16 months Cycles. When things go down a bit in terms of capital. Uh, during that time we continued to do really well in our consumables business. Um, but as those orders dried up because of, uh, customer layoffs and some print plant relocations and, and sort of extreme slowdown in vaccines and a number of other things. The capital orders dried up. And what we've seen is that cycle is is pretty much completed at this point. We've seen a very good strong order intake of for quite some time now and uh feel pretty good about catching up on that space.

Appreciate it. It's going.

The next question comes from Michael polar of wolf. Please go ahead.

Hey, good morning. Uh, Mike Tokich, it's been a pleasure. Um, first question, uh, I'm interested in your perspective. Um, the comments recently from one of your competitors in low temp sterilization, uh, six or so weeks ago, kind of an alarm bell sounded on procedure softness, purchasing delays in capital related to kind of regulatory and policy shift concerns at hospitals. Obviously, in these numbers from you, I see.

I see, none of that. And so, what did you make of all that? Is this

You're taking share. Um, I need perspective would be welcome.

Hi, Mike, this is Dan. Yeah, I mean it's hard to say. I mean, we have a lot of data points from a number of the off-site centers that we run for hospitals. In terms of volume, the volume we're seeing going through as uh and what we've seen, you know, over time and in the recent quarter in terms of our backlog growth and Order intake. So we feel like, um, I'm not sure where they came to that conclusion, but we feel pretty good about our position and haven't seen any Slowdown.

um,

Can I ask a real boring 1 in the updated guidance? Uh it was FX benefit offset by incremental tariffs and then you called out in the press release, higher employee Healthcare benefit costs. We all see what's happening with managed care. I can attest wolf internally has been struggling with higher premiums, uh, for the coming year. Is that what this is? And, uh,

Kind of interested in any fresh perspective because you're you're obviously on the um front end of your fiscal year. And as as I think we roll on the calendar 2026, I suspect

We'll hear this from a lot of other companies. So what are you seeing on that front? Thank you.

Okay, thank you.

Our next question comes from Jason bnar of Piper Sandler.

Please go ahead.

Hey, good morning, thanks for taking questions and Mike, congrats on a great career at stair. It's been a pleasure working with you and pretty impressive. Cash flow figure for you to go out on here. Um, for my, uh, my questions. I'll I'll start an order growth. Um, also really impressive in the quarter for both Healthcare and life side. I know this this stuff can be lumpy sometimes but those are really strong results especially for a first quarter. Um Can can you talk about the capital demand environment you're seeing out there and how this order book and backlog contribute to the confidence you have on on the full year Revenue guide

Yeah, the orders have remained strong in both sectors. Um we haven't seen any slowdown uh in particular in the healthcare sector. We feel like we really have got a great portfolio and a very strong offering. Um, that is positioned steros, very positively with our large customers who are looking to do more with partnership type vendors. Um, and Sarah's fills that, uh, requirement. So I I, we feel pretty good and um, having a lot of backlog does bode well, obviously for the future in terms of our

Um, ability to schedule and predict the timing of those shipments as they go out to customers over the fiscal year and then the next.

All right, great. And then as

a follow-up in dovetailing off that that cash comment I made on to Mike you the balance here, the cash balance here is I think the highest it's been in the in a few years you pay down a little bit of debt in the quarter. You bought back a small amount of stock you know what do you do from here? Um stocks cheap by historical standards. There's obviously a lot of m&a history at Steris is m&a still that preferred use of cash. I think that's I think it is. But you know can you talk about? You know what you're seeing out there in that environment, what those discussions look like

Any preference you're leaning towards uh, in terms of allocating that cash.

Time to.

Think about it.

We have been historically, active on the m&a front, we continue to be. Um we we had done some small transactions over the past couple quarters. Uh we continue to have those opportunities going forward. Um and as as always we're always looking for larger opportunities and those come in time and and what and when they do they do, it's it's hard to predict

And Jason, you will see over the next couple quarters without m&a activity. Um, we will continue to build a cash position because we have uh, almost no prep payable debt, remaining everything that we will have on our balance sheet are either private placement notes. Uh, which I think the next tranche is due not till 2027, and then we have uh, the public bonds. And I oop, top of the head. The first tranche, there was a 10-year tranche and I think that's 3032 or 30333 um so that that will don't be surprised if cash does continue to build in the short run.

All right. And then obviously obviously we will continue to do BuyBacks as we typically do um to offset dilution mainly uh we were as you can imagine blacked out this quarter because of of of of my announcement unfortunately we were able to take advantage of that but we we should get back to at least offsetting dilution in the short run.

All right, helpful caller. Thank you and congrats again.

Thanks Jason.

Once again, if you have a question, please press star then 1.

Our next question comes from Mike Matson of Needleman Company.

Please go ahead.

Yeah, thanks. Um, so a couple on the life sciences business, um, you know, we've seen, um, you know, with regard to what's happening at DC. So, you know, there's been some cuts and vaccines spending, you know, kind of um, reduce recommendations there. Um, and then, you know, broadly, we're seeing kind of a pullback in in Pharma company spending. Um, but then at the same time, there's this talk about, you know, trying to push you, you know, more, um,

Drug manufacturing into the us or incentivize that. So you know, how do you think all those things, sort of shake out for that business?

It's it's a complicated landscape is what I would say at this point. Um, you know, any any time there's relocation to manufacturing that tends to drive some benefit for our Capital business. Um, because obviously the new new equipment to to manage this aseptic environments. Um,

In the fall-off and vaccines that from where it was 3 4 years ago. So I don't think that's really a, a headwind for us going forward necessarily. Uh, and given the growth that we've seen in in other biological drugs and cell and Gene therapies, that require those aseptic environments, uh, we feel pretty confident that despite whatever macro changes their way may be, in terms of location, um, or or specific type of drug, the demand is going to remain fairly High.

Okay got it. Thanks and then just 1 on the the pre- cash flow. Um guidance increase. Um I since you're kind of earnings guidance is unchanged, I'd assume that's mainly driven by working capital is that right? And then is that you know inventory or receivables or something else things

Uh, Mike, it is, it is working capital, and it's both inventory and receivables. That we believe we will get, uh, uh, increased cash flow from, and it's about $50 million in total. And since we did overachieve this first quarter, we are carrying that through for the year.

Got it. Thank you.

Our next question comes from Justin Wong of Morgan Stanley.

Please go ahead.

Hey everyone, I'm filling in for Patrick, thanks so much for the questions. Uh, so last month, I think, president Trump granted 39 at the lean oxide sterilization facilities. A 2-year regulatory relief from nishab compliance. Um, however, I didn't see any of steros, EO sites included in that list. Uh, could you clarify, whether this is because your facilities didn't need the extension to be compliant or was this relief something that stairs pursued, but didn't receive and more, broadly, how do you see this regulatory development affecting the, uh, competitive landscape, um, as well as your positioning in EO near-term. Thank you so much.

That's a loaded question. So there's a lot there. Well first off we didn't apply for it because we don't feel what we need it. You know we've been way out ahead of this going back 4 years. Now in terms of our facilities and as I've discussed before, because many of the stairs facilities are, are newer, generally speaking in the, in the EO landscape, um, the engineering modifications that we've had to make to ensure that we meet compliance with Niche shop. Uh, we're not as significant as maybe some other, um, older facilities. So we're we're confident and, and where we are and didn't feel it necessary. Uh, you know, in terms of the competitive landscape. I mean, it it, you know, it extends the clock, maybe on some facilities that may not elect, ultimately make the high level Investments, um, you know, in terms of

Of, uh, meeting the compliance Nisha, um, but I, I don't think in the grand scheme of things. It's really all that material.

Got it. Thank you so much.

Yep.

The next question comes from Dave, windley of Jeff.

Go ahead.

Hi, good morning, thanks for taking my questions. Um, my congratulations on, uh, good career. I hope I wasn't the straw that broke the camel's back that just made, you think it was time to go.

Joking. Link is fine. Thank you. But uh, when when we were together um in June, we talked a little bit about, um, Outlook Hospital outlook on volumes and, and potential impact of ob3. And I think at the time, you know, hadn't passed, obviously, maybe hospitals were more tied up and trying to manage supply chain and and issues around tariffs. I wondered if with the passage of time

If Management's had more conversation with your hospital clients in terms of how they are assessing uh the potential impact of ob3 and declining coverage in Medicaid, exchange things like that. Thanks.

Yeah, I mean it's we'll see how things play out. I guess is what I would say but generally speaking, I think it's going to be a challenge for our, our customers obviously. Um, from a cash, from a payment standpoint, it's more of a, it's more of how they're going to figure out how to manage that than it is a demand standpoint, uh, in terms of procedure rates, ultimately. So, um, and and obviously, as indicated in, you know, this past quarter orders that we haven't seen any pullback, um, nor have we seen any pullback in current procedure volumes. Um, so, you know, I kind of go back to what I said there is we think it's the, it's a payment reimbursement issue for our customers, uh, and for Health Care system in general. In the US, that's going to have to get sorted out, um, under the new requirements.

Got it. Thank you. And and then a more boring 1, if you could remind me on on FX,

Are you kind of operationally hedged on the FX or do you see that have different effects on profitability than on the top line things?

Uh no we are. We are pretty much hedged. Uh unfortunately with the Topline increasing by 200 basis points, uh from an fx standpoint. By the time you get to the bottom line of that FX which is about 14 million dollars or so 15 million dollars we're going to have that offset the increased tariff so um but but in general, we are pretty much uh, naturally Hedge.

Got it. Thank you very much.

And our next question comes, once again from Michael polar of wolf.

Please go ahead.

Hey, thank you. Just just 1 more for me, Dan. I'm curious where you think we are.

Uh, what inning the proverbial inning question on the ASC, build out in the US and I asked specifically, and we know orthos on its way.

As a prime example but um, this summer Medicare uh provided a path for like cardiac ablation to be done in the ASC now which is a high volume EP case. So kind of what what's your feel out there? Is this still a a mega Trend? Um I'm I'm curious for any fresh anecdotes on uh, where you think we are in this cycle. Thank you.

Sure. Yeah, I I don't think that really affects in terms of volumes going through as I think that's more of a, you know, where where procedures are going to be done as you know, some shift continues. Obviously I'm sorry. I I I was asking with the lens of your Capital business and Healthcare asc's, Ambulatory Surgery centers. Sorry.

Yeah. Yeah. Okay. That makes much more sense. Um, yeah, whenever there's relocation of where procedures occur, you know, from a capital perspective that's generally beneficial to us. Um, I think there's it also requires us to, to, to meet an unmet demand, which is where you're going to have, um, lower scale, less skill, um, you know, in terms of Labor in those facilities, and we need to make sure that we have the proper training, um, and compliance, uh, programs. For those customers to ensure, they can meet the demands of the patients in terms of providing safe and sterile, uh,

you know, reusable devices, uh, into the ASC Market.

This concludes our question and answer session, I would like to turn the conference back over to miss Julie, winter for any closing remarks.

Thanks everybody for taking the time to join us this morning and look forward to catching up with many of you in the coming weeks.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect