Asked for more background on the slower Healthcare capital equipment growth this quarter, despite strong backlog, and how it's expected to ramp.

Management attributed the slower growth to a timing issue, noting that orders were up 4% and the backlog swelled to $444 million. They expressed high confidence in solid growth for the capital equipment business for the full fiscal year, emphasizing the pull-through benefits in consumables, chemistries, sterility assurance, and services from prior capital sales. “You can see our backlog swell. So it really is just a timing issue. Orders were up 4%. We are making real traction in the market right now. I'm highly confident that for the fiscal year, we're going to show solid growth for our capital equipment business.”

Questioned the rationale behind the $600 million investment in the new formulated chemistry center, specifically what tilted the scales towards shifting production.

Management explained that their existing facilities in Minnesota and St. Louis (acquired with Cantel) were not expandable and would soon reach capacity limits. A greenfield project was necessary, and North Carolina was chosen for distribution efficiencies and access to STEM talent. The new facility will be highly automated, resembling a pharmaceutical clean room, and will consolidate operations. “The problem is that neither are really expandable and both are going to be bumping up against the upper limits of capacity in the future. And in order to do anything, we were going to have to do something greenfield.”

Asked about the company's view on hospital utilization rates and procedure volumes, given strong growth in healthcare consumables, particularly in endoscopy.

Management stated they have not seen any slowdown and observe strong growth, especially in the ASC market and endoscopy. They acknowledged the challenging environment for customers but do not foresee an immediate or long-term impact on procedure volumes. Endoscopy growth is partly driven by changes in early detection guidelines (now below 50 years old) and increased colon cancer awareness. “We haven't seen any slowdown whatsoever and we see strong growth, especially in the ASC market. And in particular, as I mentioned before, in the area of endoscopy, which carries a lot of weight with STERIS in terms of our procedure growth impact.”

STE

STERIS (STE) Q1 FY27 earnings call: guidance and Q&A

Q: Inquired about the underlying trends in AST services, given tough comps and inventory dynamics, and whether the expected growth acceleration into the second half of the year remains on track.

Management confirmed that the tough comps from last year's first half are expected to linger, but they anticipate acceleration in AST growth rates as they move into easier comparisons starting in Q3, when destocking began last year. The fundamentals remain unchanged, and the model for H2 acceleration is playing out as expected. “We would expect that to continue and start to see improvement. I would hope by the end of the second quarter and definitely a material improvement in terms of performance by Q3.”

Earnings call· Jun 2026 (Q1 FY27)· Health Care· Aug 6, 2026

Source: earnings call transcript

Executive summary

STERIS plc Q1 FY27 — Strong Organic Growth and Major Investment in Formulated Chemistry

STERIS delivered solid Q1 FY27 results with strong organic revenue growth and significant margin expansion, driven by pricing and productivity. The company announced a major $600 million investment in a new formulated chemistry center of excellence to support long-term growth and optimize its manufacturing network, while maintaining its full-year financial outlook. Management expects AST segment growth to accelerate in the second half of the fiscal year as inventory destocking subsides.

Highlights

Constant currency organic revenue grew 6% in Q1 FY27, driven by volume and 190 basis points of price.
Adjusted EPS increased 11% to $2.59 in Q1 FY27, exceeding tax expense increases.
Healthcare segment's service revenue grew 10% and consumables grew 9% in Q1 FY27.
Gross margin improved by 70 basis points to 46% in Q1 FY27, driven by price and productivity.
EBIT margin increased 100 basis points to 23.8% of revenue in Q1 FY27.

Concerns

Free cash flow decreased to $279.6 million in Q1 FY27 from $326.5 million in the prior year, primarily due to lower working capital contribution.
AST segment's EBIT margins decreased 60 basis points to 48% in Q1 FY27 due to increased depreciation and slightly lower productivity.
Life Sciences segment's margins decreased 140 basis points to 42.1% in Q1 FY27, impacted by unfavorable productivity and inflation.
Gross tariff costs, excluding refunds, were $14 million in Q1 FY27, up from $12 million in the prior year.

Guidance & targets

Category	Target	Timeline	Confidence
Full-year FY27 As Reported Revenue Growth	7% to 8% high materiality	FY27	High
Full-year FY27 Constant Currency Organic Revenue Growth	6% to 7% high materiality	FY27	High
Full-year FY27 Adjusted EPS	$11.10 to $11.30 high materiality	FY27	High
Full-year FY27 Adjusted EPS Growth	9% to 11% high materiality	FY27	High
Full-year FY27 Capital Expenditures	approximately $450 million high materiality	FY27	High
Full-year FY27 Free Cash Flow	$800 million high materiality	FY27	High
AST Organic Growth	7% to 8% medium materiality	FY27	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
Healthcare Constant currency organic revenue growth driven by stable underlying demand. Margin increase of 60 bps due to volume, pricing, positive productivity, and favorable mix, partially offset by inflation, investments, and tariffs. Service revenue growth: 10%Consumables growth: 9%Capital equipment revenue growth: 1%Orders growth: 4%Ending backlog: $444 million	—	6%	—	24.8%
AST Constant currency organic revenue growth against difficult comparisons. Global demand remains soft due to customer inventory management. Margin decrease of 60 bps from prior year due to increased depreciation and slightly lower productivity, despite additional pricing. Services growth: 6%	—	5%	—	48%
Life Sciences Constant currency organic revenue growth. Margins decreased 140 bps due to unfavorable productivity and inflation, partially offset by pricing and volume. Capital equipment growth: 17%Consumables growth: 8%Services growth: 2%Ending backlog: $110 million	—	8%	—	42.1%

STE operating KPIs by quarter

STE operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Mar 2026 Q4 FY26	This call Jun 2026 Q1 FY27	Change vs prior quarter
Capital equipment backlog Healthcare	<$400M Capital equipment backlog ended just under $400 million with orders up 2% in the fourth quarter. Source: earnings call transcript	$444M Orders remained solid, with 4% growth in the first quarter, and our ending backlog increased to $444 million. Source: earnings call transcript	—
Capital equipment backlog Life Sciences	<$100M Capital equipment backlog ended solid at just under $100 million. Source: earnings call transcript	$110M Backlog at quarter end was about flat with prior year at $110 million. Source: earnings call transcript	—

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Risks & headwinds

Soft global demand and inventory destocking in AST segment Expected to persist through Q2 FY27, with recovery in H2 FY27.

AST constant currency organic revenue grew 5% in Q1 FY27, with services growing 6%.

Mitigation:Management expects acceleration in growth rates as comparisons ease and destocking subsides, with full-year organic growth still projected at 7-8%.

Inflationary pressures impacting margins Q1 FY27, ongoing.

Gross margin drivers (price, productivity) were 'somewhat offset by inflation'. Life Sciences margins decreased 140 bps due to 'unfavorable productivity and inflation'.

Mitigation:Driving pricing and productivity initiatives to offset inflation.

Increased depreciation impacting AST margins Q1 FY27, ongoing.

AST EBIT margins decreased 60 bps due to 'increased depreciation and slightly lower productivity'.

Mitigation:Incremental depreciation from new capacity coming online is built into modeling.

Unfavorable discrete items impacting effective tax rate Q1 FY27.

Adjusted effective tax rate increased to 25.9% from 23.5% YoY.

Mitigation:Not explicitly stated, but implies these are non-recurring or managed through tax planning.

What to watch in Q2 FY27

AST Organic Growth Acceleration

Q2 FY27 / Q3 FY27

Current 5% in Q1 FY27

Target Material improvement by Q3 FY27

Why it matters

Verifying the expected acceleration in AST growth is crucial for the company to meet its full-year organic growth guidance and signals recovery from inventory destocking.

We would expect that to continue and start to see improvement. I would hope by the end of the second quarter and definitely a material improvement in terms of performance by Q3.

Find out whether STE delivers this. Inve re-checks your case every morning.

Q&A highlights

Inquired about the underlying trends in AST services, given tough comps and inventory dynamics, and whether the expected growth acceleration into the second half of the year remains on track.

Management confirmed that the tough comps from last year's first half are expected to linger, but they anticipate acceleration in AST growth rates as they move into easier comparisons starting in Q3, when destocking began last year. The fundamentals remain unchanged, and the model for H2 acceleration is playing out as expected.

“We would expect that to continue and start to see improvement. I would hope by the end of the second quarter and definitely a material improvement in terms of performance by Q3.”

asked by Brett Fishbin · answered by Daniel Carestio

3 min read 6 chapters

Detailed narrative

Formulated Chemistry Center of Excellence Investment

STERIS announced a $600 million investment to build a new formulated chemistry center of excellence in North Carolina. This will be the company's largest single manufacturing site investment, comprising two facilities totaling 600,000 square feet for manufacturing, R&D, and distribution.

The center will produce high-performance infection prevention and contamination control chemistries for healthcare and pharmaceutical customers, supporting over $700 million in current revenue. The facility is expected to become operational in 2 to 3 years, with a phased approach starting with distribution, and will consolidate operations from St.

Louis, Missouri, and Plymouth, Minnesota facilities.

Restructuring Program and Financial Impact

In conjunction with the new facility, STERIS announced a restructuring program with anticipated pretax charges of $55 million to $70 million, consisting of $40 million to $50 million in cash expenditures and $15 million to $20 million in noncash charges.

Less than $10 million is expected to be booked in fiscal 2027. The investment is projected to generate an ROIC of over 10% within 3 to 5 years of opening. Capital expenditures for the North Carolina facility are expected to be approximately $75 million in FY27, $350 million in FY28, and $175 million in FY29.

Healthcare Segment Performance and Endoscopy Trends

The Healthcare segment achieved 6% constant currency organic revenue growth, driven by stable demand. Service revenue grew 10% and consumables grew 9%, benefiting from increased customer consumption, share gains, and procedural growth in endoscopy. Healthcare capital equipment revenue increased 1%, with orders up 4% and ending backlog at $444 million.

Management noted strong endoscopy procedural growth, partly attributed to increased awareness and earlier detection guidelines for colon cancer, and is gaining share in this space with automatic endoscope processors and related services.

AST Segment Dynamics and Outlook

The AST segment reported 5% constant currency organic revenue growth, with services growing 6%. Performance was impacted by difficult comparisons and soft global demand as customers continued to manage down existing inventory. Management expects destocking to persist through Q2 FY27, with an anticipated acceleration in growth rates in the second half of the year, particularly by Q3.

The segment's full-year organic growth is still expected to be in the 7% to 8% range, supported by prior capacity expansions.

Life Sciences Segment and Onshoring Trends

Life Sciences group saw 8% constant currency organic revenue growth, with capital equipment up 17% and consumables up 8%. Backlog was flat year-over-year at $110 million. The company observes a trend of localization and onshoring in pharmaceutical manufacturing globally, which creates opportunities for STERIS as new manufacturing sites require tools, sterilizers, washers, and chemistries.

This disruption in manufacturing is generally positive for the company, driving demand for its products and services.

Tariff Impact and Refunds

Gross tariff costs, excluding refunds, were $14 million in Q1 FY27, an increase from $12 million in the prior year. The company received $4 million in tariff refunds during the quarter. STERIS has submitted claims for approximately $24 million in eligible refunds under Phase I and Phase II processes, with initial Phase I refunds now being received.

Tariff refunds are booked in corporate and not allocated to business segments for analysis purposes.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.