Medical equipment and services company Steris (NYSE: STE). reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 9.9% year on year to $1.46 billion. Its non-GAAP profit of $2.47 per share was 5.1% above analysts’ consensus estimates.

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Company Overview

With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE: STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, STERIS’s sales grew at a solid 13.5% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. STERIS’s annualized revenue growth of 8.8% over the last two years is below its five-year trend, but we still think the results were respectable.

We can better understand the company’s sales dynamics by analyzing its constant currency revenue, which excludes currency movements that are outside their control and not indicative of demand. Over the last two years, its constant currency sales averaged 7.2% year-on-year growth. Because this number is lower than its normal revenue growth, we can see that foreign exchange rates have boosted STERIS’s performance.

This quarter, STERIS reported year-on-year revenue growth of 9.9%, and its $1.46 billion of revenue exceeded Wall Street’s estimates by 2%.

Looking ahead, sell-side analysts expect revenue to grow 6.9% over the next 12 months, a slight deceleration versus the last two years. Despite the slowdown, this projection is above the sector average and indicates the market is baking in some success for its newer products and services.

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Operating Margin

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D.

STERIS has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 13.2%, higher than the broader healthcare sector.

Looking at the trend in its profitability, STERIS’s operating margin rose by 6.1 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, STERIS generated an operating margin profit margin of 18.2%, up 1.7 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

STERIS’s EPS grew at a remarkable 10.8% compounded annual growth rate over the last five years. Despite its operating margin improvement during that time, this performance was lower than its 13.5% annualized revenue growth, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into STERIS’s earnings quality to better understand the drivers of its performance. A five-year view shows STERIS has diluted its shareholders, growing its share count by 15.1%. This dilution overshadowed its increased operational efficiency and has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

In Q3, STERIS reported adjusted EPS of $2.47, up from $2.14 in the same quarter last year. This print beat analysts’ estimates by 5.1%. Over the next 12 months, Wall Street expects STERIS’s full-year EPS of $9.87 to grow 6.9%.

Key Takeaways from STERIS’s Q3 Results

We enjoyed seeing STERIS beat analysts’ constant currency revenue expectations this quarter. We were also happy its revenue outperformed Wall Street’s estimates. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 2.8% to $250 immediately after reporting.

STERIS put up rock-solid earnings, but one quarter doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.