STE Q2 Deep Dive: Strong Revenue Growth, Segment Momentum, and Guidance Reaffirmed

Medical equipment and services company Steris (NYSE:STE). reported Q2 CY2025 results exceeding the market’s revenue expectations, with sales up 8.7% year on year to $1.39 billion. Its non-GAAP profit of $2.34 per share was 3.4% above analysts’ consensus estimates.

Is now the time to buy STE? Find out in our full research report (it’s free).

StockStory’s Take

STERIS delivered results for Q2 that were ahead of Wall Street’s expectations, with management attributing the performance to broad-based volume growth across its Healthcare, AST (Applied Sterilization Technologies), and Life Sciences segments. CEO Daniel Carestio highlighted double-digit service growth and robust order activity, particularly in Healthcare capital equipment, as key drivers. The company also benefited from stable medical device demand and improved productivity, despite incremental tariff costs impacting the Healthcare segment. Management emphasized that “service continued its streak of outperformance,” and cited a return to “a normal trajectory” in bioprocessing demand, supporting steady top-line expansion.

Looking forward, STERIS’ guidance is underpinned by expectations for consistent organic revenue growth in all business segments, ongoing productivity initiatives, and careful management of inflationary and tariff-related pressures. Management reiterated its full-year outlook and emphasized their confidence in backlog conversion and demand trends, stating that “each segment is expected to grow constant currency organic revenue in the range of 6% to 7%.” CFO Michael Tokich noted that higher tariff costs will be offset by favorable currency movements, and Carestio pointed to “a very good strong order intake for quite some time now” as a foundation for maintaining momentum through the rest of the year.

Key Insights from Management’s Remarks

Management attributed revenue growth in the quarter to strong service performance, a rebound in bioprocessing, and higher capital equipment order flow, while margin improvement was driven by pricing and operational productivity.

• Healthcare segment strength: The Healthcare segment saw broad-based growth, with capital equipment revenue up and order backlog exceeding $400 million. Management noted that large customers value STERIS’ partnership approach, supporting confidence in future shipments.
• Service outperformance: Services within both Healthcare and AST posted double-digit growth, benefiting from stable procedure volumes and increased demand for maintenance and compliance support, which management views as a recurring revenue engine.
• Bioprocessing market stabilization: After a period of uneven demand, bioprocessing volumes have normalized over the past several months, supporting more predictable revenue in AST.
• Life Sciences backlog recovery: The Life Sciences segment experienced a sharp rise in backlog, which management attributes to the completion of a downcycle in pharma and vaccine capital spending. Consumables growth remained robust, partially offsetting past capital order weakness.
• Tariff and cost management: Higher tariffs on metals and increased employee healthcare utilization presented challenges, but positive pricing actions and productivity gains allowed STERIS to offset most of these input cost pressures.

Drivers of Future Performance

STERIS’ outlook centers on steady organic growth across its core markets, supported by backlog conversion and ongoing efficiency efforts, though tariff and inflation pressures remain key risks.

• Backlog conversion and demand: Management expects strong order backlogs in Healthcare and Life Sciences to drive revenue in coming quarters, with CEO Carestio highlighting “a very good strong order intake” and no signs of slowdown in procedure volumes.
• Cost pressures and mitigation: Elevated tariffs on metals and increased employee healthcare costs are expected to persist, but management aims to counter these with pricing measures and operational productivity, as CFO Tokich explained that “positive price and productivity outpaced inflation and tariff costs.”
• Strategic capital deployment: STERIS plans to continue disciplined capital allocation, favoring M&A opportunities and ongoing share buybacks to offset dilution, while committing to dividend growth and maintaining a strong balance sheet.

Catalysts in Upcoming Quarters

In upcoming quarters, our team will be tracking (1) the pace at which Healthcare and Life Sciences backlogs convert to revenue, (2) STERIS’ ability to offset rising tariff and healthcare benefit costs through pricing and productivity, and (3) ongoing trends in bioprocessing and service demand. Strategic use of cash for acquisitions and dividend increases will be additional signposts for execution.

STERIS currently trades at $241.62, up from $221.50 just before the earnings. At this price, is it a buy or sell? The answer lies in our full research report (it’s free).

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