STERIS (NYSE:STE) executives highlighted broad-based third-quarter fiscal 2026 growth, improved earnings, and ongoing tariff headwinds during the company’s earnings call, while maintaining full-year guidance and pointing to a more challenging comparison in the fourth quarter.
Third-quarter results: revenue up 9%, EPS up 9%
Chief Financial Officer Karen Burton said third-quarter revenue from continuing operations rose 9% on an as-reported basis. Constant currency organic revenue increased 8%, driven by volume and about 200 basis points of price.
The adjusted effective tax rate was 24.2%, down slightly from 24.5% a year earlier due primarily to changes in geographic mix. Adjusted net income from continuing operations was $249.4 million, and diluted EPS from continuing operations was $2.53, representing a 9% increase year over year.
Cash flow, debt, and capital spending
Burton said capital expenditures for the first nine months of fiscal 2026 totaled $278.8 million, while depreciation and amortization totaled $363.1 million. STERIS ended the quarter with $1.9 billion in total debt, and gross debt to EBITDA was approximately 1.2x.
Free cash flow for the first nine months of fiscal 2026 was $736.6 million, improving year over year due primarily to higher earnings and lower capital spending. In the Q&A, management said it remained confident in its full-year free cash flow target but cited fourth-quarter timing factors—particularly a “heavy capital quarter”—that could shift cash collections into the next year. Burton also noted that winter weather can affect timing, contributing to a conservative stance on guidance.
Segment performance: Healthcare, AST, and Life Sciences
President and CEO Dan Carestio said the company’s Healthcare segment delivered 8% constant currency organic revenue growth in the quarter, with “growth across all categories.” Service revenue continued to outperform, growing 11%, while consumables grew 8% and capital equipment rose 7%. Healthcare capital backlog remained above $400 million. Carestio said orders were down 1% year-to-date against “difficult comparisons” following a strong prior-year period.
Healthcare EBIT margin declined 100 basis points to 24.3%. Carestio attributed the margin decline to tariffs and inflation, which more than offset benefits from volume, pricing, and restructuring program initiatives.
In Applied Sterilization Technologies (AST), constant currency organic revenue grew 8%, including 9% growth in services and 103% growth in capital equipment revenue. Carestio said AST services benefited from stable medical device volumes, bioprocessing demand, and currency. AST EBIT margin was 45.1%, up 30 basis points year over year, as pricing and volume more than offset higher labor and energy costs and an unfavorable mix impact from strong capital equipment growth.
In Life Sciences, constant currency organic revenue increased 5%, driven by 11% consumables growth. Capital equipment revenue increased 7%, and backlog remained above $100 million. Segment margins dipped 20 basis points, as volume and price gains were outweighed by tariffs and inflation.
Tariffs: impact and mitigation efforts
Carestio said third-quarter results included approximately $16 million of pre-tax tariff impact, primarily in the Healthcare segment. Management stated that tariff costs are expected to increase in the fourth quarter.
During Q&A, executives clarified that the $55 million tariff figure referenced in guidance reflects an annual run rate for fiscal 2026 and that tariffs have been incurred in every quarter. The company also indicated that the expected tariffs embedded in the full-year outlook increased by $10 million, which Carestio said makes the upper end of the EPS guidance range “less likely.”
Management described a broad set of mitigation actions underway, including:
- Shifting product movement
- Supplier negotiations and alternative sourcing
- Cost reductions and productivity improvements, including facility and back-office efficiencies
Investor Relations Vice President Julie Winter added that the increase in the year’s tariff outlook is mainly driven by metals and that higher capital equipment sales increase tariff exposure due to mix. On fiscal 2027, executives suggested that, based on current tariffs, incremental impact would likely be limited, though they noted tariff rates fluctuated during the year, particularly in the first half.
Outlook and Q4 considerations
STERIS maintained its fiscal 2026 guidance, calling for approximately 8%–9% as-reported revenue growth and 7%–8% constant currency organic revenue growth. The company also reiterated adjusted EPS guidance of $10.15 to $10.30, while noting that additional tariffs reduce the likelihood of reaching the high end of the range. Free cash flow guidance remains $850 million, and CapEx remains $375 million.
Addressing expectations for the fourth quarter, Carestio cautioned that the company anticipated a slowdown in the second half and pointed to a tough comparison versus a strong prior-year fourth quarter, particularly in AST, where capital equipment performance was strong last year and is “not expected this year.” Winter added that Healthcare services growth has already decelerated from earlier levels and is expected to continue slowing in the fourth quarter.
On capital equipment demand, Carestio said Life Sciences backlog improvement reflects a recovery from a period when pharmaceutical customers were spending less, noting stronger order bookings beginning in the prior year’s third quarter. In Healthcare, he described demand as resilient, citing the essential nature of the company’s sterilization and disinfection offerings and stating that the company has not seen a “meaningful slowdown” in capital spending.
In discussing broader market factors, Carestio said the shift of procedures toward ambulatory surgery centers has generally been positive for STERIS, citing new capacity needs and the clinical support required for sterilization and disinfection. He added that while he has read about potential shifts related to PPE and active pharmaceutical ingredient manufacturing, he has not yet seen material impacts. Carestio also said the company remains committed to structural changes aimed at a more integrated commercial approach in EMEA, while noting it will take time to execute.
On acquisition activity, Carestio said the company has remained active in smaller bolt-on product and channel deals but emphasized a disciplined approach to larger transactions, noting that “major transformative” M&A is difficult and must meet financial criteria and customer value thresholds.
About STERIS (NYSE:STE)
STERIS Corporation (NYSE: STE) is a global provider of infection prevention, contamination control and procedural products and services for the healthcare, life sciences, pharmaceutical and medical device industries. The company develops, manufactures and supports a broad portfolio of equipment and consumables designed to reduce risk of infection, maintain sterile environments and support critical clinical and manufacturing procedures.
Its offerings include sterilization and decontamination systems, instrument washers and washers-disinfectors, endoscope reprocessing solutions, surgical equipment and procedural disposables, and contamination-control products for cleanrooms and laboratories.
