STE Q1 Earnings Call: STERIS Outpaces Profit Expectations, Faces Revenue Headwinds and Tariff Uncertainty

Medical equipment and services company Steris (NYSE:STE). missed Wall Street’s revenue expectations in Q1 CY2025 as sales rose 4.3% year on year to $1.48 billion. Its non-GAAP EPS of $2.74 per share was 5.4% above analysts’ consensus estimates.

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StockStory’s Take

STERIS’ first quarter results were shaped by steady performance in its core Healthcare and Applied Sterilization Technologies (AST) segments, as management highlighted recurring revenue growth and disciplined cost management. CEO Dan Carestio attributed the quarter’s results to strong procedure volumes in the U.S., market share gains, and continued momentum in consumables and services. He also pointed out that capital equipment revenue declined from the previous year’s high, but noted robust new order intake that contributed to a comfortable backlog. CFO Mike Tokich emphasized improved gross margins, citing favorable pricing, product mix, and productivity that offset labor inflation. Both executives referenced the benefits from restructuring cost savings and working capital improvements, with free cash flow reaching a new high. They acknowledged the impact of segment-specific challenges, including volatility in bioprocessing and the lumpy nature of capital equipment shipments, while maintaining that STERIS’ diversified portfolio helped offset these obstacles.

Looking ahead, STERIS’ forward guidance is underpinned by management’s expectations for balanced revenue growth across all segments, continued margin improvement, and the ability to navigate external pressures such as increased tariffs. CEO Dan Carestio noted, “Our outlook reflects 6% to 7% revenue growth, with about 200 basis points from pricing, and includes a $30 million tariff headwind.” Management expects to benefit from restructuring savings and lower legal expenses in the coming year, while leveraging STERIS’ North American manufacturing footprint to reduce tariff exposure. CFO Mike Tokich described the anticipated tariff impact as “a net number,” and stated that mitigation efforts will continue throughout the year, with the majority of exposure in Healthcare and some in Life Sciences. The company also flagged ongoing opportunities for M&A and emphasized its readiness to pursue acquisitions if attractive targets arise. However, management cautioned that macroeconomic uncertainty and industry-specific headwinds may influence the pace of recovery in capital equipment and bioprocessing markets.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to steady recurring revenue streams, margin discipline, and proactive tariff mitigation, while highlighting segment-specific dynamics and M&A readiness.

• Healthcare recurring revenue strength: STERIS saw ongoing growth in consumables and service revenues within Healthcare, driven by stable U.S. procedure volumes and market share gains, which helped offset a decline in capital equipment sales compared to the previous year’s peak.
• Capital equipment order rebound: Despite a year-over-year decline in Healthcare capital equipment revenue, management cited a 12% increase in new orders, leading to a robust backlog that is expected to support future growth as hospitals invest in sterile processing and surgical infrastructure.
• AST segment stability: The Applied Sterilization Technologies (AST) segment delivered 9% constant currency organic revenue growth, with services up 7%. Management noted that medical device customer demand remained stable, but bioprocessing revenue was described as “lumpy,” reflecting quarter-to-quarter variability.
• Margin gains from cost actions: Gross and operating margin improvements were attributed to positive pricing, favorable product mix, productivity gains, and restructuring cost savings. CFO Mike Tokich highlighted roughly $20 million in anticipated restructuring savings for the coming year.
• Tariff exposure and mitigation: Tariff costs of $30 million are factored into guidance, with management underscoring STERIS' North American manufacturing base as a partial shield. The company is actively pursuing supply chain adjustments to further limit tariff impact, particularly in Healthcare and Life Sciences.

Drivers of Future Performance

STERIS’ outlook for the year centers on broad-based revenue growth, disciplined margin management, and navigating external headwinds such as tariffs and market uncertainty.

• Segment-wide growth expectations: Management projects 6%-7% organic revenue growth across all segments, driven by recurring consumables and services, and supported by a strong capital equipment backlog, particularly in Healthcare. There is cautious optimism for Life Sciences given recent order recovery.
• Margin management amid tariffs: The company expects $30 million in tariff expenses, primarily impacting Healthcare and Life Sciences. STERIS aims to offset these costs through pricing actions, productivity improvements, and supply chain adjustments, while restructuring savings should provide additional margin support.
• Industry and macroeconomic risks: While management is confident in the company’s ability to deliver growth, they flagged ongoing macroeconomic uncertainty and potential delays in customer purchasing decisions, especially in capital equipment and bioprocessing, as risks that could affect the pace of revenue realization.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) execution on backlog delivery, especially for capital equipment in Healthcare and Life Sciences, (2) the effectiveness of tariff mitigation strategies and any supply chain adjustments, and (3) trends in recurring consumables and services growth amid evolving procedure volumes. Progress on M&A activity and the impact of macroeconomic changes on customer investment decisions will also be important indicators.

STERIS currently trades at a forward P/E ratio of 24.4×. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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