The paragraph introduces the STERIS plc Second Quarter 2025 Earnings Call, noting that it is recorded and hosted by Julie Winter from Investor Relations. Key speakers include Mike Tokich, Senior Vice President and CFO, and Dan Carestio, President and CEO. Julie provides cautionary notes about the webcast, stating it contains forward-looking statements subject to risks outlined in STERIS' SEC filings and advises against redistribution without permission. The call also includes non-GAAP financial measures, with more information and reconciliations available in their release. These measures aim to enhance transparency for management and Board decision-making. Julie then hands the call over to Mike.

In the second quarter, the company reported a 7% growth in both total as-reported and constant currency organic revenue, driven by volume and price increases. Despite positive pricing and favorable material costs, the gross margin decreased by 50 basis points to 43.7% due to labor inflation and productivity challenges, which also led to a 30 basis point decline in EBIT margin to 22.2%. The adjusted effective tax rate was 22.7%, and net income reached $212.2 million, with a 15% increase in adjusted earnings per share. Capital expenditures for the first half of fiscal 2025 were $210 million, and the company reduced its total debt to $2.2 billion, maintaining a gross leverage ratio of approximately 1.5x. Free cash flow for the first half was $344.5 million, aligning with the company's full-year guidance. Healthcare segment revenue also grew 7%, driven by recurring revenue streams.

In the paragraph, the company reports strong performance in consumables and services, driven by increased procedure volumes, price, and market share gains in the U.S., despite a 2% decline in healthcare capital equipment revenue due to shipment timing. Orders grew by over 30%, resulting in a substantial backlog, but healthcare capital equipment revenue is expected to be flat or slightly down in fiscal 2025. The healthcare segment remains strong due to recurring revenue outperformance offsetting lower capital equipment revenue, with stable margins due to pricing, productivity, and lower material costs. In AST, organic revenue grew by 9% due to services and capital shipments, despite increased labor and energy costs affecting EBIT margins. A loss was recorded on a med-x business unit order but margin improvements are anticipated later in the year. Life Sciences saw a 3% organic revenue growth attributed to consumables, and margins benefitted from a favorable mix, pricing, and a business unit divestiture. Expectations for fiscal 2025 remain positive.

The paragraph provides a financial outlook for the full fiscal year, maintaining a 6% to 7% constant currency organic revenue growth forecast and adjusted earnings per diluted share between $9.05 and $9.25. Free cash flow expectations remain at approximately $700 million, with about $360 million allocated to capital spending. Segment-wise, Life Science revenue is expected to be flat for the year, with declines in capital equipment offset by consumable strength, while Healthcare is predicted to grow mid- to high single digits, driven by recurring revenues. AST revenue is projected to grow in high single digits, though not reaching double-digit growth by year-end. Margins are anticipated to remain flat annually. Despite challenges, the company's diversified nature aids overall performance. The paragraph concludes with a transition to the Q&A session, where Jacob Johnson from Stephens poses questions about AST's large equipment sale loss and its effect on the segment's margins and adjusted EPS guidance.

The paragraph features a discussion between several individuals about financial expectations and performance related to various sectors of a company. Mike Tokich mentions a one-time loss that impacted margins by about 200 basis points, linked to a 2020 acquisition of Med-X and issues with fulfilling an order without the ability to adjust costs. Dan Carestio is optimistic about growth in the bioprocessing sector, especially in the latter half of the year, despite it not reaching the expected levels from a medtech perspective by mid-year. He anticipates achieving a double-digit growth rate eventually, but likely later than the fourth quarter. Brett Fishbin, from KeyBanc, asks for more details on the company's updated healthcare capital equipment projections, which have been adjusted from low single-digit growth to flat or slightly down.

The paragraph features a discussion between Dan Carestio, Brett Fishbin, and Mike Tokich about the company's performance and expectations. Dan explains that shipments in the quarter were affected by weather-related delays, particularly hurricanes in the Southeast, but the backlog remains strong, especially in healthcare. They are offsetting shipment issues with higher profit margins from consumables and services. Brett Fishbin asks about operating margin expectations and the impact of AST's performance. Mike Tokich responds that AST's performance has influenced EBIT margin improvements, and there's nothing else hindering their long-term goal of expanding EBIT margins annually. A new question from Patrick Wood with Morgan Stanley about supply chain changes and tariffs is introduced at the end.

In the article paragraph, Dan Carestio discusses how their AST business has been experiencing significant growth, particularly in the Asia Pacific region, due to reshoring and front-shoring efforts, especially in Malaysia. This growth is driven by companies relocating operations there in anticipation of potential challenges related to China. On the topic of yield litigation related to the Waqigail-Illinois facility owned from 2005 to 2008, Carestio mentions that they have provided disclosures and prefer not to discuss ongoing litigation publicly until more definitive information is available. Michael Polark from Wolfe Research inquires about the growth in healthcare consumables and services, asking if there are specific areas like processing, OR consumables, or repair services contributing to this growth.

Dan Carestio discussed the company's strong performance in consumables and services, driven by significant shipments of capital equipment and robust procedure volumes in the U.S. Despite having a strong balance sheet and capacity for mergers and acquisitions (M&A), Carestio mentions that the timing for opportunities doesn't always align. Although the M&A pipeline looks robust, they are primarily considering smaller tuck-in acquisitions. Meanwhile, they have repurchased $100 million worth of shares recently. Mike Tokich adds that labor and energy costs are putting some pressure on the company’s margins.

The paragraph discusses the impact of labor and energy costs on financials, highlighting that while labor costs are a lagging factor, energy costs are difficult to control and have a timing issue when it comes to passing them on. It also delves into the bioprocessing segment, which comprises about 6% to 8% of AST's revenue, and is expected to grow. Additionally, it touches on AST's medtech customer trends, noting a slowdown likely due to inventory management strategies, similar to STERIS's own reductions, and suggests that customers may have overproduced earlier, leading to tighter inventory controls.

The paragraph discusses a business where procedure rates are critical for growth, but current rates do not match AST growth. There's an expectation of improved growth as they align, despite a 6% growth rate that is not seen as highly disappointing due to high standards. Michael Polark asks about Life Sciences margins, which are improving due to a mix shift towards higher-margin consumable products, counterbalancing declines in capital equipment profit. A discussion follows with Jason Bednar on legal issues related to EO, but Dan Carestio declines to discuss legal strategy or provide details, referring to existing public comments.

In the paragraph, a discussion unfolds about the outlook for AST (presumably a business segment) and its connection to bioprocessing. Dan Carestio notes that the outlook might be slightly lower due to observed year-to-date volumes and trends, necessitating a more conservative approach. Despite this, he expects strong margins in the latter half of the year, after adjusting for past losses. Jason Bednar questions the potential effect on achieving double-digit growth, while Mike Matson inquires about the company's ability to maintain its EPS guidance amid flat margins. Mike Tokich responds that the EPS guidance remains within range due to a favorable impact on interest expenses, which are now expected to be about $90 million for the full year.

Jacob Johnson inquires about the strong demand in the Life Sciences business, particularly for consumables, and the factors driving this demand. Dan Carestio responds by noting that the business is experiencing a strong recovery due to easier comparisons with the previous year, which had significant destocking in consumables like barrier products and chemistry. He mentions that core customers have resumed full production. The session concludes with Julie Winter thanking participants and mentioning upcoming conferences.

This summary was generated with AI and may contain some inaccuracies.