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    STE
    Earnings call· Jun 2026(Q1 FY27)

    STERIS Q1 FY27 earnings call STE

    Aug 6, 2026 Source

    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

    5

    • 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

    4

    • 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

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

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    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%

    Operational metrics

    19
    Total As Reported Revenue Growth
    7%
    Q1 FY27

    Total as reported revenue growth for the quarter.

    Constant Currency Organic Revenue Growth
    6%
    Q1 FY27

    Total company constant currency organic revenue growth.

    Gross Margin
    46%up 70 bps YoY
    Q1 FY27

    Gross margin for the quarter.

    Gross Tariff Costs (excluding refunds)
    $14 millionvs $12 million Q1 FY26
    Q1 FY27

    Gross tariff costs before any refunds.

    Tariff Refunds Received
    $4 million
    Q1 FY27

    Tariff refunds received in the quarter, booked in corporate.

    Net Tariff Impact
    favorable $2 millionYoY
    Q1 FY27

    Net tariff impact year-over-year.

    EBIT Margin
    23.8%increase of 100 bps YoY
    Q1 FY27

    EBIT margin for the quarter.

    Adjusted Effective Tax Rate
    25.9%vs 23.5% Q1 FY26
    Q1 FY27

    Adjusted effective tax rate for the quarter.

    Adjusted Net Income
    $253.4 million
    Q1 FY27

    Adjusted net income for the quarter.

    Adjusted EPS
    $2.5911% increase YoY
    Q1 FY27

    Adjusted earnings per diluted share.

    Capital Expenditures
    $87.5 million
    Q1 FY27

    Capital expenditures for the quarter.

    Depreciation and Amortization
    $123.8 million
    Q1 FY27

    Depreciation and amortization for the quarter.

    Total Debt
    $1.9 billion
    Q1 FY27

    Total debt at quarter end.

    Gross Debt to EBITDA
    1.1x
    Q1 FY27

    Gross debt to EBITDA at quarter end.

    Share Buybacks Executed
    $100 million
    Q1 FY27

    Share buybacks executed in the first quarter.

    Remaining Share Buyback Authorization
    $900 million
    Q1 FY27

    Remaining authorization under current share buyback program.

    Quarterly Dividend Per Share
    $0.69increase of $0.06
    Q1 FY27

    Dividend announced last week.

    Formulated Chemistry Center of Excellence Investment
    $600 million
    multi-year

    Largest investment in company history for a single manufacturing site.

    Restructuring Charges
    $55 million to $70 million
    multi-year

    Anticipated pretax restructuring charges related to the new facility and closure of existing sites.

    Industry KPIs

    3
    MetricValueDetails
    Tariff impact$14 millionUSD
    Pricing realized price190 bpsbps
    FCF conversion leverage guidance1.1x

    Risks & headwinds

    4
    Soft global demand and inventory destocking in AST segmentExpected 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 marginsQ1 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 marginsQ1 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 rateQ1 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

    4

    AST Organic Growth Acceleration

    Q2 FY27 / Q3 FY27
    Current5% in Q1 FY27
    TargetMaterial 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.

    Q&A highlights

    6

    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 read6 chapters

    Detailed Narrative

    01

    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.

    02

    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.

    03

    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.

    04

    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.

    05

    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.

    06

    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.

    AI-generated summary of the company’s earnings call. Not investment advice.