Another quarter has gone by, and results at STERIS
Sales growth at this infection-prevention and -control company couldn't crack double digits in the second quarter, with total sales growth reported at 9%. Once again, the life sciences business was weak (sales down 6%), the health-care business was so-so (10% reported growth, 6% organic growth), and the Isomedix business got most of its growth through acquisition (33% reported growth and 7% organic growth).
Margins also took a bit of beating in the period. Higher raw material costs hurt gross margins, but increased non-research operating expenses did their damage as well. Operating margins fell from a mediocre 11% last year to an even more mediocre 9.8% for this period. As a result, reported operating and net income were actually down a bit versus last year.
I've followed this company off and on for almost 10 years now, and I can't say I'm overly enamored of what I see in the business these days. Looking at the double-digit disposables growth but weak overall revenue growth, I think I know what's going on here.
Hospitals have only a finite amount of money to spend on equipment, and it looks as though new equipment from STERIS just isn't a priority. When you look at the high cost of new equipment -- whether it's IntuitiveSurgical's
A turnaround here is not out of the question, but it will be difficult for the company to claw its way back against the likes of Johnson & Johnson
To its credit, the company continues to produce free cash flow and it sounds as though management is attempting to expand into new non-medical markets. That said, new market opportunities will take years to bear real fruit. They also don't change the nearly stagnant state of the company's core medical business -- at least in comparison to the larger medical device/health-care sector.
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Intuitive Surgical is a Motley Fool Rule Breakers recommendation.
Fool contributor Stephen Simpson owns shares of Johnson & Johnson.
