Steris (STE -1.19%), a healthcare company specializing in infection prevention and sterilization products and services, reported Q1 FY2026 earnings on August 6, 2025. The most notable news from the release was that while the company delivered solid year-over-year growth and margin gains, both revenue (GAAP) and non-GAAP earnings per share (EPS) fell short of analyst expectations. Actual revenue (GAAP) reached $1,391.1 million, compared to an analyst estimate of $1,447.8 million, while adjusted EPS came in at $2.34 versus a consensus estimate of $2.47. But increased tariffs and higher employee benefit costs offset foreign currency gains, keeping the adjusted earnings per diluted share outlook unchanged despite a raised revenue forecast. Overall, the period featured robust operational performance but highlighted new cost challenges for the business.
| Metric | Q1 FY26(Three months ended June 30, 2025) | Q1 FY26 Estimate | Q1 FY25(Three months ended June 30, 2024) | Y/Y Change |
|---|---|---|---|---|
| EPS (Non-GAAP) | $2.34 | $2.47 | $2.03 | 15.3 % |
| Revenue (GAAP) | $1,391.1 million | N/A | $1,279.5 million | 8.7% |
| Free Cash Flow (Non-GAAP) | $326.5 million | $195.7 million | 66.8% | |
| Revenue – Healthcare segment | $974.7 million | $901.2 million | 8.2% | |
| Revenue – AST segment | $281.2 million | $249.8 million | 12.6 % |
Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q4 2025 earnings report.
Business Overview and Strategic Focus
Steris provides sterilization, infection prevention, and procedural support solutions for hospitals, surgery centers, and pharmaceutical manufacturers. Its core offerings include sterilizers, surgical tables, and endoscope reprocessors—products vital for maintaining safety in healthcare environments. The company earns a significant share of revenue through recurring services and consumable items, such as cleaning supplies and ongoing maintenance.
Recently, Steris has placed emphasis on growing its service business, expanding its footprint in infection prevention, and managing global supply chain challenges. Key factors influencing its performance include compliance with strict healthcare regulations, control over supply chains for critical raw materials, and driving innovation in sterilization technologies and process solutions for medical providers.
Quarter Highlights: Segment Performance and Operational Developments
Steris’s results reflected growth across all divisions. Total revenue increased 8.7% year-over-year The Healthcare segment, which encompasses sterile processing solutions and infection prevention products, contributed $974.7 million in revenue, up 8% compared with the first quarter of fiscal 2025. Within Healthcare, service revenue jumped 13%, and consumables climbed 5%, showing strong repeat business from healthcare customers. The Applied Sterilization Technologies (AST) segment, which delivers contract sterilization services to medical device and pharmaceutical manufacturers, saw a 12.6% revenue increase, fueled by 12% growth in services and an even higher 46% increase in capital equipment sales. Life Sciences, the smallest division focused on consumables and equipment for pharmaceutical and laboratory use, grew 5.2%, supported by a 53.8% rise in Life Sciences backlog compared with Q1 FY2025, indicating healthy demand for future quarters.
Income from operations (GAAP) increased 32.6% compared with Q1 FY2025. Higher pricing, operational productivity, and restructuring gains offset inflation and tariff pressures. Cash flow from operations (GAAP) rose to $420.0 million compared with $303.7 million in Q1 FY2025, a 38% increase. Free cash flow (non-GAAP) rose nearly 27% compared with the prior year period, reflecting stronger collections and careful management of inventory and accounts receivable. Inventory increased sequentially by $59.9 million, suggesting investments to support future growth. A $10.6 million share repurchase occurred, following higher share repurchases in the previous year.
The company noted that tariff-related costs rose sharply, with projected annual impact rising from $30 million to $45 million. These tariffs, largely related to trade policies with China and broader global import duties, increased cost burdens despite Steris manufacturing most U.S.-sold products in North America. Labor and employee healthcare costs also continued to climb, affecting overall profitability. Notably, R&D expenses edged up to $26.4 million, showing continued investment in future offerings. The backlog for both Healthcare and Life Sciences climbed, supporting confidence in future demand.
Though the company continues to monitor regulatory and legal risks, especially related to chemical emissions and ongoing litigation. Board changes were announced, including two retirements and a new director with healthcare industry expertise. Across segments, the pronounced growth in services and consumables illustrated renewed momentum in recurring revenue—a metric investors watch as an indicator of stability in future financial performance.
Management Outlook and Key Issues to Watch
After the strong top-line performance, Steris raised its reported revenue growth forecast for FY2026 from 6–7% to 8–9%, driven entirely by favorable shifts in foreign currency exchange rates. However, the outlook for adjusted earnings per share remained unchanged, as management expects higher tariffs and increased employee health costs to offset the incremental revenue gains. Management now projects a $45 million pre-tax profit impact from tariffs, up from the earlier $30 million estimate. Free cash flow (non-GAAP) guidance was lifted to $820 million, with capital expenditures forecasted at $375 million for the year.
Investors are being advised to keep a close eye on further changes in tariffs, inflation in employee benefits, and ongoing supply chain factors. Recurring revenue growth from services and consumables, backlog levels in Healthcare and Life Sciences, and execution on cost control will be especially important.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
