The paragraph details the introduction of the STERIS plc Fourth Quarter 2025 Conference Call. The operator announces the listen-only mode for participants and provides instructions for questions after the presentation, mentioning that the event is being recorded. Julie Winter, from Investor Relations, introduces the call, indicating that Mike Tokich, the CFO, and Dan Carestio, the CEO, will be speaking. Julie provides cautionary information about the content of the webcast, noting it contains forward-looking statements that could vary significantly based on numerous factors mentioned in STERIS' SEC filings. She emphasizes the use of non-GAAP financial measures on the call, directing to resources for more details and reconciliations.

The paragraph outlines the financial performance for the fourth quarter. Total reported revenue grew by 4%, and organic revenue increased by 6%. Gross margin improved by 170 basis points to 44.3%, and the EBIT margin increased to 24.8% due to positive pricing and favorable mix. The adjusted effective tax rate was 23.5%, affected by unfavorable discrete item adjustments. Net income was $270 million, and adjusted earnings per share rose by 40% compared to the previous year. The company reduced its debt to $2 billion, with a gross debt to EBITDA ratio of 1.4x. Free cash flow reached a record $787 million, exceeding guidance due to improvements in working capital, particularly in inventory. Capital expenditures were $370 million, and depreciation and amortization totaled $476 million.

The company reported a 6% growth in revenue and 12% growth in earnings for fiscal 2025, with a positive outlook for fiscal 2026. Despite facing challenges, the company's diversified business model enabled it to meet its original outlook. In the Healthcare segment, constant currency organic revenue grew by 6%, driven by recurring revenue and gains in consumables and services, although capital equipment revenue declined by 5%. Margins in Healthcare improved to 25%, aided by cost savings and productivity gains. In the AST segment, organic revenue rose by 9%, with significant growth in capital equipment shipments, but EBIT margins slightly decreased due to energy and labor costs. Life Sciences saw a 1% increase in organic revenue, fueled by consumables and services, offset by a decline in capital equipment revenue.

The paragraph discusses the company's financial performance and outlook. Margins increased by 360 basis points to 42.3%, leading to a strong earnings finish for the year with an adjusted EPS of $9.22, surpassing their revised outlook. For fiscal 2026, they anticipate a revenue growth of 6% to 7% from continuing operations, with no expected impacts from acquisitions, divestitures, or foreign currency changes. Each segment is projected to grow by 6% to 7%, and price adjustments account for approximately 200 basis points of the growth. AST services revenue is expected to grow in high single digits, offset by a decline in capital equipment. The company has accounted for a $30 million tariff cost in their fiscal 2026 EPS outlook of $9.90 to $10.15, which implies a 7% to 10% growth in earnings. While they have minimized tariff exposure through North American manufacturing, tariffs still have some impact. The paragraph concludes with appreciation for the supply chain and commercial teams.

The paragraph discusses the expectation of using STERIS's strengths to reduce exposure to global tariffs, particularly a 10% tariff and a trade deal with China. The company anticipates an EBIT margin increase by 20 basis points at the high earnings end, suggesting an offset against tariffs. The tax rate is set at 23.5%, and the company is optimistic about growth in 2026. During the Q&A session, Dave Turkaly inquires about the Life Sciences segment's performance. Dan Carestio responds, mentioning success in recurring revenues from chemistries and consumables, despite a previous downturn in capital equipment due to uncertainty in pharma. However, the company saw a late-year rebound and has a strong order backlog, which they expect to fulfill in 2026.

The paragraph discusses the financial outlook and factors affecting it, as explained by Mike Tokich. For FY '26, the company expects $20 million in restructuring cost savings and reduced ETO litigation expenses of about $5 million, which are positive factors. However, these are offset by $15 million in increased incentive compensation, another $15 million in tariff impacts, and a shift in interest and tax expenses. Cash flow guidance is lower compared to FY '25, primarily due to a $40 million legal settlement related to ETO and a less substantial reduction in inventory. Finally, there is an indication of improved leverage ratios, hinting at potential updates in M&A strategy.

In the article paragraph, Dan Carestio discussed the company's capacity for mergers and acquisitions (M&A), stating that they are ready to engage if the right opportunity arises due to their financial and intellectual resources. When asked about the potential shift towards onshoring production to the U.S., he suggested it might be more of a theoretical consideration than a practical trend, though there are some opportunities. He noted that in the med tech industry, production shifts depend on factors like tariffs and regulatory permits, making it a complex process. Additionally, Patrick Wood inquired about the challenges faced by smaller players in terms of compliance costs and related issues, though a detailed response wasn't included in this paragraph.

The paragraph covers a conversation primarily between Dan Carestio and Mac Etoch, discussing the potential for industry consolidation due to tight EO capacity. Dan expresses a preference for developing new assets rather than acquiring older ones and anticipates some industry consolidation. Mac extends congratulations on the company's quarterly and annual performance, and seeks insight into the FY '26 outlook, particularly regarding AST's growth projections. Dan mentions variation in volume movements and the company's conservative approach, particularly in bioprocessing recovery and manufacturing shifts. Mac inquires about client conversation changes due to macroeconomic conditions, especially relating to Life Sciences and the AST segment.

In the paragraph, Dan Carestio from STERIS discusses the company's market share gains in the Healthcare segment, highlighting their success across the entire segment, particularly in North American markets, due to a strong portfolio and enterprise solutions in sterile processing. He doesn't provide specific growth expectations for consumables, services, and equipment for the next fiscal year but emphasizes a strong order year that will benefit their capital backlog. The conversation shifts to tariffs, with Jason Bednar seeking clarification on a $30 million impact mentioned in a press release, noting a potential $15 million component, but confirming the total is $30 million net.

The paragraph features a discussion between Dan Carestio, Mike Tokich, and Jason Bednar about the company's exposure to tariffs, specifically regarding China-related tariffs and global tariffs, which amount to approximately $30 million. This figure is a net number, meaning mitigation efforts have been considered. There is also a conversation about share repurchase activity, which was lighter in the fourth quarter compared to earlier in the fiscal year. Tokich clarifies that the company bought about $200 million worth of shares in FY '25 to offset dilution and suggests there isn't a specific signal behind the recent pause in share buybacks. He also mentions the possibility of additional buybacks, depending on their debt status. Lastly, Tokich reiterates that significant work is required to mitigate the tariff impacts, and timing is a critical factor.

The paragraph discusses the impact of recent developments on the healthcare capital equipment sector. Despite not providing specific growth guidance, the speakers emphasize that their capital equipment is essential for accommodating procedural growth, likening it to a utility rather than a luxury. While replacement business can be deferred, new equipment is still necessary for expansions. They mention a favorable order year with a 12% growth in orders, resulting in a comfortable backlog position. Recent macro developments are prompting strategic considerations regarding changes in vendors, manufacturing locations, or supply due to a 90-day pause on China tariffs. Overall, they expect these factors to primarily affect their Healthcare segment, with minimal impact on Life Sciences and AST.

In the paragraph, Dan Carestio and Brett Fishbin discuss the current state and future prospects of their business, specifically focusing on AST (an unspecified term related to their services). Dan Carestio indicates that they have not experienced any slowdown in order volumes as they approach the first quarter, which they view positively. Regarding capacity, Carestio assures that they are prepared to handle growth in the industry without issues. Michael Polark from Wolfe Research inquires about AST service growth and potential influences on past performance, like tariff-related inventory adjustments. Carestio dismisses the idea of any significant impact from tariff front-loading and notes that while December was exceptionally strong, January started slowly.

The paragraph discusses that plant restarts from a customer perspective were unusually slow this year, partly due to February having fewer processing days. However, there was significant growth in the latter half of February and March, affecting the quarter's overall performance. The operator concludes the question-and-answer session, and Julie Winter thanks participants, expressing anticipation for future conversations. The call is then formally concluded, and participants are invited to disconnect.

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