Management Commentary

Julie Winter
VP of Investor Relations and Corporate Communications, STERIS plc

Thank you, Chad, good morning, everyone. Speaking on today's call will be Karen Burton, our Senior Vice President and CFO, and Dan Carestio, our President and CEO. I do have a few words of caution before we open for comments. This webcast contains time-sensitive information that is accurate only as of today. Any redistribution, retransmission, or rebroadcast out of this call without the express written consent of STERIS is strictly prohibited. Some of the statements made during this review are or may be considered forward-looking statements. Many important factors could cause actual results to differ materially from those in the forward-looking statements, including without limitation, those risk factors described in STERIS's securities filings. The company does not undertake to update or revise any forward-looking statements as a result of new information or future events or developments. STERIS's SEC filings are available to the company and on our website.

In addition, on today's call, non-GAAP financial measures, including adjusted earnings per diluted share, adjusted operating income, constant currency organic revenue growth, and free cash flow will be used. Additional information regarding these measures, including definitions, is available in our press release, as well as reconciliations between GAAP and non-GAAP financial measures. Non-GAAP financial measures are presented during this call with the intent of providing greater transparency to supplemental financial information used by management and the board of directors in their financial analysis and operational decision-making. With those cautions, I will hand the call over to Karen.

Karen Burton
SVP and CFO, STERIS plc

Thank you, Julie. Good morning, everyone. It is my pleasure to be with you this morning to review the highlights of our fourth quarter performance from continuing operations. As anticipated, we ended this strong year with a lighter fourth quarter. For the fourth quarter, total as-reported revenue grew 7%. Constant currency organic revenue grew 5% in the quarter, driven by volume as well as 230 basis points of price. Gross margin for the quarter was 44%, down 30 basis points versus the prior year. We continued to realize positive pricing, which helped mitigate the impact of higher tariffs and inflation. EBIT margin for the quarter was 24.2% of revenue, a high for fiscal 2026. This was 60 basis points below the fourth quarter last year, mainly driven by inflation and tariffs.

Incremental tariffs impacted our fourth quarter by approximately $10 million, which was below our expectations due to lower volumes in materials and products sourced from outside the U.S. The adjusted effective tax rate in the quarter was 25.4%, an increase from 23.5% in the fourth quarter last year. The year-over-year increase was driven primarily by changes in geographic mix and unfavorable discrete items. Adjusted net income from continuing operations in the quarter was $278.3 million. Earnings per diluted share from continuing operations were $2.83, a 3% increase over the prior year as the lower margin and higher tax rate limited earnings growth in the quarter. Before I turn to cash flow for the year, I want to dig into the upward pressure on our tax rate for a moment.

For the full year fiscal 2026, our adjusted effective tax rate was 24.4%, an increase of 130 basis points from fiscal 2025. Our tax rate varies based on many factors, most notably geographic profit mix and discrete item adjustments, which include withholding taxes. Since we generate the majority of our profit in the U.S., it is common that we need to move cash across borders to deploy capital. This movement may trigger U.S. withholding taxes. Our fiscal 2027 guidance assumes that in accordance with our capital allocation priorities, we will increase the dividends, reinvest in our business, invest to grow through M&A, and return excess cash to shareholders through our share buyback program. To fund some of these priorities, we expect to incur additional withholding tax, putting further upward pressure on our effective tax rate.

This is reflected in our estimate of 25% in fiscal 2027. Capital expenditures for fiscal 2026 totaled $369 million, and depreciation and amortization totaled $486.5 million. We ended the year with a strong balance sheet reflecting $1.9 billion in total debt. Gross debt-to-EBITDA at year-end was approximately 1.2x, well below our targets of 2x-2.5x. Free cash flow for fiscal 2026 was exceptional at $982.9 million, with year-over-year improvement driven primarily by an increase in earnings, which more than offset the significantly lower contribution from working capital in fiscal 2026 compared with fiscal 2025.

To provide some context, recall that the working capital improvement that we generated in fiscal 2025 was primarily the result of targeted inventory reductions as we recovered from supply chain challenges. Going forward, we would expect our working capital will grow in line with volume. Once again, we are heading into a new fiscal year in a strong financial position with continued commitment to our capital allocation priorities. With that, I will now turn the call over to Dan for his remarks.

Dan Carestio
President and CEO, STERIS plc

Thanks, Karen. Good morning, everyone. Thank you for joining us to hear more about our fiscal 2026 performance and our outlook for fiscal 2027. Karen covered the quarter at a high level. I will add some commentary on the year and then comment on our outlook. Fiscal 2026 was another record year for STERIS with 9% revenue growth, 7% on a constant currency organic basis. We are pleased to have translated this into 10% adjusted earnings per share growth despite the 80 basis points of impact from tariffs on margins. Our businesses all hit new milestones this year, contributing to total company revenue of approximately $6 billion and adjusted net income topping $1 billion.

This is an exciting time to be at STERIS, and we expect to continue to grow the business mid to high single digits organically over time and leverage that to deliver double-digit bottom-line growth. Supporting our growth, U.S. procedure volume continues to grow mid-single digits, a level we expect to be consistent in fiscal 2027. Procedure volume outside of the U.S. do continue to lag a bit, which impacts our AST segment a little bit more than Healthcare. From a segment perspective, Healthcare reported another strong year, growing 9% as reported and 8% from a constant currency organic perspective. This growth was driven by another remarkable year for service, growing 12%, as well as 7% growth in consumables as we continue to pick up share thanks to the breadth of our portfolio and the performance of our commercial teams.

Capital equipment also grew nicely, up 6% for the year, stabilizing after the last several years of lumpiness. Capital equipment backlog ended just under $400 million, with orders up 2% in the fourth quarter. This year, we reached new milestones in Healthcare business, generating $4 billion in revenue and $1 billion in operating income. We continue to be excited about what is yet to come as we expand our offering through organic and inorganic growth to deliver products and services that address the most pressing operational needs of our customers. AST grew 10% as reported and 7% constant currency organic. This was a bit lighter than what we had anticipated with softness in the second half of the year, in particular, a slower fourth quarter for services due to the severe snowstorms in the U.S. early in the calendar year.

For the year, our services business grew 11% as reported, or about 8% constant currency organic, which aligns with our expectations for the business going forward. With over $1 billion in revenue, AST crossed a new milestone of its own, exceeding $500 million in operating profit. Life Sciences grew 9% as reported and 7% constant currency organic, driven by 15% growth in capital equipment as our customers returned to capital investment again following last year's downturn. Consumables continued their steady path of growth at 8%, and services improved 5% despite some more quarterly volatility than we usually see. Capital equipment backlog ended solid at just under $100 million. Life Sciences posted its own record year, exceeding $250 million in operating profit for the first time, reflecting strong operating margins.

Total company EBIT margins expanded by 10 basis points to 23.3% for fiscal 2026, despite incremental tariff costs of approximately $46 million, which trimmed our margin by 80 basis points. Lower interest contributed to our double-digit growth in adjusted earnings at $10.17 per diluted share. We also stayed true to our capital deployment priorities this year. We increased the quarterly dividend $0.06 to $0.63, our 20th year of dividend growth. We invested in ourselves, in particular in AST expansions projects for X-ray globally. In addition, we completed two tuck-in acquisitions that add to our healthcare portfolio globally. Last but not least, we used $225 million for share buybacks. As you saw in our press release, the board has approved a new $1 billion buyback authorization.

Going forward, we expect to utilize excess cash to consistently buy back shares in the range of $200 million-$300 million per year. Turning to our outlook for fiscal 2027. As noted in the press release, we anticipate as-reported revenue to grow 7%-8% in fiscal 2027. Changes in foreign currency are expected to be slightly favorable to STERIS. Tuck-in acquisitions and healthcare are contributing inorganic revenue to our as-reported outlook for the segment and total company. There are two acquisitions driving this contribution. In the fourth quarter, we vertically integrated our supplier for MEDglas Walls, extending our reach from the U.S. to global. In addition, early in the first quarter, we acquired a family of GI products that expanded our offering and improved our channel. These two acquisitions are expected to contribute combined revenues of approximately $45 million to fiscal 2027.

As a result, constant currency organic revenue growth is expected to be 6%-7% for the total company. This outlook assumes approximately 200 basis points of price. From a segment perspective, we anticipate Healthcare and Life Sciences to grow 6%-7% constant currency organic and AST to grow 7%-8%. We are taking a more conservative approach on our outlook to AST to start the year. Our MedTech customers continue to manage inventory levels carefully, and we are heading into the new year with some difficult comparisons in the first half, leaving us cautious. For fiscal 2027, EBIT margins are anticipated to expand approximately 50 basis points at the high end of our outlook. This assumes tariff spending is flat year-over-year and the benefit of a tailwind from our Incentive Compensation program.

We will be making select investments in FY 2027, driving incremental operating expenses, including kicking off a multiyear project to support our service workflows with upgraded technologies utilizing AI to improve quality, increase productivity, and enhance the customer experience within both the healthcare and life science segments. Our fiscal 2027 earnings per share outlook is $11.10-$11.30, growth of 9%-11% over fiscal 2026. In fiscal 2027, free cash flow is expected to be $850 million and CapEx of $375 million. Underlying our free cash flow expectations, we expect that net working capital will grow in line with volumes. We will also use about $50 million for additional incentive compensation payments due in June and the remainder of our EO settlement payments over the year.

From a capital perspective, our capital spending priorities are shifting a bit as we are nearly done with our multi-year X-ray expansion in AST. In fiscal 2027, we will build a new sterility assurance manufacturing plant in Mentor, Ohio, which will ultimately allow us to consolidate existing U.S. production into one new state-of-the-art manufacturing center of excellence to serve our healthcare and life science customers. We will invest about $60 million over two years and expect that plant to be operational by the end of calendar 2027. Fiscal 2026 was a banner year in many ways for STERIS. Looking back at the last five years, our performance has really been remarkable.

We delivered average constant currency organic revenue growth of 9%, and our compounded annual growth rate for adjusted earnings was 11% during what was one of the more tumultuous five years in our history here. Equally important, our healthcare organization has transformed from a products and services focus to a valued partner to healthcare customers to help enable them to solve some of their most pressing operational challenges that they are facing. We are committed to partnering with our customers to enable them to meet their procedural growth needs, improve the delivery of the quality outcomes, and improve standardization and optimization as they manage critical inventory from the OR to the SPD and back. Thank you to all of our associates for continuing to do what you do best, focus on our customers, and strive to do better every single day.

That concludes our prepared remarks for the call. Operator, would you please give the instructions so we can begin the Q&A?

Analyst Q&A

Brett Fishbin — Analyst, KeyBanc
Hello, good morning. Thanks for taking the questions. I just wanted to start off with one on the FY 2027 earnings guidance. I think you mentioned that, you know, you're thinking about operating margin expansion of approximately 50 basis points at the high end of the range. I was just curious if you could walk through, like, some of the moving pieces. I think, you know, there's some questions around the impact of inflation and energy prices, and then also what you're thinking around tariffs as compared to FY 2026, as well as just the contribution from underlying performance.
Dan Carestio — President and CEO, STERIS plc
All right. Thanks, Brett, good morning. We appreciate the question. I'll add a little bit of light to this. Karen's gonna pepper in a little bit more of a response on some of the details around tariffs and et cetera. You know, I think there's a few things that, you know, we're gonna work on really hard to maximize that 50 basis points. That's really gonna be some operational improvements, as well as a continued sell-through of our higher margin consumables products that we'll see over the next fiscal year. You know, the sort of upside in that is if we deliver a little better on the AST business, just given the margin profile there. Karen, I'll hand it over to you to handle some of the tariff-related questions.
Karen Burton — SVP and CFO, STERIS plc
Great. Thank you. The good news is, in terms of tariffs, the recent changes are favorable to us and serve to offset the volume increase for next year. In an odd twist, tariffs are an okay thing for us looking at 2027. In terms of other opportunities, challenges, the bonus tailwind is about $20 million. As we look at and have incorporated energy, and particularly oil-driven costs, we have incorporated those. We have considered also, you know, how long this may last, looked at forward rates. The largest challenge and driver would be freight. We have opportunities to recover most of our freight out to customers through our freight recovery pricing. The day-to-day fuel associated with our fleet of service techs in the field is not significant. It's, you know, low single digits exposure.
When you look at our raw materials, you know, we do have raw materials that are impacted by oil. That represents only about 20% of our COGS. Generally, energy is, has certainly been meaningful, particularly to AST, but it is a small percentage of COGS in AST as well. Hopefully that helps you.
Brett Fishbin — Analyst, KeyBanc
Yeah, no, that's helpful. Also just a question on guidance. I think you had some comments about the difficult comps in AST service to begin the year. Just wanted to maybe ask more broadly how you're thinking about overall phasing for organic growth, whether you're calling for like a softer 1Q overall, or if it was more specific to AST service given the comps. Thank you so much.
Dan Carestio — President and CEO, STERIS plc
Yeah, really more specific to the AST comps. You know, we started the year last year, first couple quarters and, you know, double-digit growth in that business. Then, you know, saw a bit of a slowdown in Q3, where we saw some inventory pullback from our customers. Then this past quarter got a little weird just with the snowstorms. We probably lost 150 to 200 basis points of growth there. If you sort of stack all that up, I think one would expect a slower start in the first half then significantly improving in Q3 then pretty easy comps from Q4.
Mike Matson — Analyst, Needham & Company
Yeah, thanks for taking my question. I guess just following up on the tariff question. What is your expectation for the USMCA renegotiation this year, and what have you assumed in your guidance with regard to that?
Karen Burton — SVP and CFO, STERIS plc
Yeah, this is Karen. I will answer that. In terms of the USMCA review, you know, a joint review has a July 1st deadline. All three governments have emphasized the importance of continuity and avoiding disruption, no real movement in those discussions yet. We have not included any assumption for USMCA. We're assuming stagnant, and that it will likely move into a annual continual review phase at least in the short term.
Mike Matson — Analyst, Needham & Company
Okay. Understand. Then with the rollback or potential rollback of the ethylene oxide regulations under the new administration, what does that mean for STERIS, if anything? Is there any sort of positive financial implications there?
Dan Carestio — President and CEO, STERIS plc
Not really. I mean, we're pretty much fully spent on upgrading our facilities, the NESHAP. You know, maybe there's some timing on compliance that's not as in the forefront in terms of, you know, something we have to do tomorrow versus something we can get done in the next six months. There's no significant capital impact on us given where we are already with our facilities.
Mike Matson — Analyst, Needham & Company
Okay. Got it. Thank you.
Dan Carestio — President and CEO, STERIS plc
Yeah, thank you.
Dave Turkaly — Analyst, Citizens
Good morning. You called out some tuck-in M&A in healthcare and then obviously a billion-dollar buyback. I was just wondering, should we be reading into that at all in terms of, you know, sizable transactions and/or maybe valuation in the sector?
Dan Carestio — President and CEO, STERIS plc
Thanks, Dave. I would say no. I mean, our M&A is erratic at times because it's when opportunities present themselves that have been worked on for a long period of time. You know, we typically do small tuck-in M&A throughout the year. We're just calling these two out because they do have a material impact on the fiscal performance as we look next year of close to 100 basis points for healthcare. In terms of the buyback, you know, Karen shed some light on the tax that we pay as a result of moving money for doing distributions and on dividends, but also for doing buybacks. That's been something that's been holding us back for a number of years, I would say.
The reality is that we understand going forward that doing some level of consistent buyback is important for the health of our company.
Dave Turkaly — Analyst, Citizens
Got it. You called out service and AST and the weather. I was wondering, I know it's not a big component, but the capital component. I was wondering if you could just give us any color as to, you know, what was going on there in the fourth quarter.
Dan Carestio — President and CEO, STERIS plc
On the AST side? Yeah.
Dave Turkaly — Analyst, Citizens
Yeah.
Dan Carestio — President and CEO, STERIS plc
Thanks, Dave. It's just lumpiness of that business. It's, you know, we sell, you know, $20 million, $30 million a year. Sometimes that can be in four orders. If you ship two of them in one quarter, one in another, you know, the way it spreads out, you can have a quarter with very little equipment sales, but just equipment service parts and things like that. Then you could have the next quarter, you could ship two machines in, you know, we're a hero, right? It's, you kinda have to look at it in the year in aggregate, I guess.
Dave Turkaly — Analyst, Citizens
Got it. Thank you.
Dan Carestio — President and CEO, STERIS plc
Sure thing.
Mac Etoch — Analyst, Stephens
Hey, good afternoon. Thank you for taking my questions. Maybe, just to follow up on some of the AST questions. You called out some MedTech customers continuing to manage inventory levels carefully. Can you just, you know, speak to what you saw in AST as the quarter progressed and, you know, particularly on the volume side?
Dan Carestio — President and CEO, STERIS plc
Yeah. I mean, the organic volume was less than what we would anticipated, you know, in the last two quarters. Like I said, Q4 is easy to understand because we had storms where we were shut down, our customers were shut down for a number of days in the Midwest and even the Southeast and the East Coast, right, which is where a lot of our big plants are. That is what it is. They'll recover over time, the volume will come back, et cetera. What we have seen, you know, and maybe it's post-tariff confidence in supply chains, maybe it's whatever, we've seen some inventory reduction across the broader customer segment, right, in terms of med tech. What we know is this. What we know is procedure rates are still consistently growing.
From a patient and, you know, provider perspective, the demand is still there. What we know is that when we see the revenue reports of our large public customers, you know, that supports that growth as well. We're seeing good top-line sales from a lot of the large MedTech companies that show good growth over the last couple of quarters. You know, if you sort of align those things with what we're running in terms of volumes, it points to a bit of an inventory pullback, which is the situation that we've seen over the last couple of quarters.
Mac Etoch — Analyst, Stephens
Appreciate it. Thank you for the color there. Secondly, healthcare and life science has both had a pretty decent quarter from a capital equipment perspective. Backlog did decline sequentially. I just kinda wanted to get your sense of how we should think about the progression for capital equipment revenue and backlog as it progresses through 2027.
Dan Carestio — President and CEO, STERIS plc
I think a little bit on 2026, we tend to ship a lot in Q4, and we tend to build a lot of capital, and then we tend to push as much as we can, it just seems to be the normal cyclical nature of the business. It's a lot better than it used to be. We used to have an extreme hockey stick here at STERIS, but it's somewhat mitigated now. That's not abnormal for us to have a little bit of a drain on our backlog with a high shipment Q4. It's sort of norm for us here at STERIS. In terms of the go-forward, you know, our orders have remained solid.
You know, we're in a different position with the pressure that's being exerted on the healthcare systems, in that, you know, we help enable them to get procedure volumes up and to run better quality and things that are important to them as they're looking for opportunities to generate more revenue and also save costs. I think we're in a pretty good position as we go forward with our large customers.
Mac Etoch — Analyst, Stephens
I appreciate the color.
Dan Carestio — President and CEO, STERIS plc
Thank you.
Dave Windley — Analyst, Jefferies
Hi, good morning. Thanks for taking my question. I wanted to ask about the sterility assurance facility. I think you're suggesting that you're consolidating a number of facilities. I wondered how many or what operating efficiency you might expect to pick up when that is operational and kind of, you know, essentially the motivations for taking this step and consolidating into one facility. Thanks.
Dan Carestio — President and CEO, STERIS plc
Thank you, Dave. This is Dan. You know, first off, we've got three different facilities. Two of them happen to be here locally, and it just makes sense to consolidate. The real driving issue here is this has been a really high growth and high margin business for us at STERIS, and one that we've been really successful in picking up share in our healthcare organization in particular, as most every system now is at least dual source to STERIS. We're pleased with the performance of the business. In terms of the need to build the new facility, A, it's capacity driven, and B, there's a significant opportunity to put in what is a nearly fully automated manufacturing facility, really a center of excellence.
With that, you know, over time, there will be some cost benefit on the savings. More important than that, it's really supporting the long-term growth of a high-growth, high-margin business.
Dave Windley — Analyst, Jefferies
Got it. Then switching gears, I think I wanted to go back to your description on AST and the cadence that you were expecting for 2027. I think you quantified for fourth quarter, maybe, STERIS lost 150 to 200 basis points because of weather. Are you expecting that to come back? Is that coming back early in the year or more spread during the year? I was kind of juxtaposing the benefit of getting that.
Dan Carestio — President and CEO, STERIS plc
Yeah
Dave Windley — Analyst, Jefferies
You know, that pushed out volume into first quarter, but you talked about the comps being tough and how we should think about the balance of those two things. Thanks.
Dan Carestio — President and CEO, STERIS plc
Yeah, we've thought about it a lot. We've thought about this a lot. It's really tough to quantify, to be honest with you, because it's not just, you know, the volume through our plants, but there's also a considerable amount of surgical procedures that were canceled or deferred. I think some of the large public healthcare systems commented on that in their earnings release. I think over time, provided that those procedures are still required, which they should be, you know, that our customers, meaning the healthcare facilities, will, you know, provide those procedures and hopefully that drives, you know, drives the demand upstream into the MedTech sector where they'll be producing the products for said procedures.
Dave Windley — Analyst, Jefferies
Okay. Thank you.
Dan Carestio — President and CEO, STERIS plc
Thank you.
Michael Polark — Analyst, Wolfe Research
Hi, good morning. A follow-up on the margin guidance for fiscal 2027. Two-parter. On tariffs, Karen or Dan, can you just remind us, in fiscal 2026, what was the total tariff headwind and what's considered in 2027? Does 2027 embed any contribution from refunds? That's the first part. The second part is the bonus tailwind that was spelled out. I guess I don't understand why that's being modeled. Was there overachievement in fiscal 2026 and you're modeling normalization in fiscal 2027? Thank you.
Karen Burton — SVP and CFO, STERIS plc
Thanks, Mike. This is Karen. I can help you with these. In terms of tariffs, you know, our incremental tariffs in 2026 was $46 million, which puts us at a total tariff spend between $60 million and $65 million, and that's what we're modeling for 2027. We are not including any refunds in our 2027 guidance. We have not recorded anything. When it comes, we will recognize it. We've taken that position because it's difficult to know, you know, how quickly this will actually happen. On the bonus, you are correct. We did have overachievement in fiscal 2026, and we are modeling 100% achievement in fiscal 2027 as we usually do. That's the differential of $20 million that I mentioned.
Michael Polark — Analyst, Wolfe Research
Helpful and very clear. Follow-up, different topic. Dan, your quote in the press release, "Deliver quality outcomes and drive compliance with standardization and optimization." It just feels like something that I haven't heard you say before, and I'm just trying to understand particularly around the compliance and the compliance comment.
Dan Carestio — President and CEO, STERIS plc
Yeah.
Michael Polark — Analyst, Wolfe Research
What are you telling us there?
Dan Carestio — President and CEO, STERIS plc
Yeah. We've been working for a long time, you know, to really, you know, put our system together in the sterile processing department where we're helping our customers drive compliance, making it easier for them to have access to IFUs at the sink, making it harder to move products down the line in the SPD without confirmation that you're in compliance. Doing things that hopefully eliminate unnecessary steps for our customers. In addition to that, overlaying on top of that SPM, which is basically our ERP for the sterile processing department, to allow our customers to track and trace compliance and inventory through the sterile processing departments.
Michael Polark — Analyst, Wolfe Research
Thank you.
Dan Carestio — President and CEO, STERIS plc
Yep. Thank you.
Jason Bednar — Analyst, Piper Sandler
Hey, thanks for taking the questions. Wanted to start here, everyone, just maybe first on the larger buyback authorization. Definitely seems like a commitment, greater commitment than what anything you've done historically. The authorization's twice the size, I think, of your last one. I think your comment here of $200 million-$300 million is more than what you'd normally commit to. Just how should we think about executing against that authorization, you know, considering how pressured your stock has been here of late? Would you be open to moving above that upper bound of $300 million if the stock remains under pressure? Just maybe the flexibility versus, like, hard commitment to the ranges you provided here.
Karen Burton — SVP and CFO, STERIS plc
Thanks, Jason. This is Karen. Yeah, we are looking at and planning for a use of excess cash, and that's where the $200 million-$300 million is. You are correct. You know, historically, we would typically offset dilution, so about $100 million, maybe do a little more depending on cash position and opportunity, and stock price. Because of the withholding tax, we believe a measured approach is the right answer. We have this incremental hurdle when we do buybacks to overcome. When we model the withholding tax, the lost interest, potentially having to borrow to go bigger, it starts to not make sense. That is our plan.
What we see when we do that is that we take the hit for that withholding tax in the period, and we start to see the accretion as we execute consistently and don't continue to grow that withholding tax cost incrementally year-over-year.
Jason Bednar — Analyst, Piper Sandler
Okay. Okay, that makes sense. Maybe one other one here just on, Dan, this is probably for you. Just given what we're seeing across the supply chain landscape and inflationary pressure on certain categories, I'm just reminded of what STERIS went through a few years ago, sourcing what I think you termed the golden screw. There's a lot of discussion out there from other equipment players on things like chips. Can you talk about what you're seeing on that front? Do you have supply visibility on chips and other critical components? If you could, maybe Karen later on, what's assumed in your guide here with respect to supply and COGS inflation? Thank you.
Dan Carestio — President and CEO, STERIS plc
Yeah. Thanks, Jason. What I would say is we're a vastly different organization today than we were a few years ago when we went through the golden screw diaries or whatever we wanna call it. It was a miserable time for all of us. For one thing, we've significantly invested in our supply chain resources here at STERIS. We've also done a lot of work to mitigate single source supply. We've identified, you know, basically any critical parts, where we, you know, strategically hold as excess inventory, which Karen doesn't love, I can assure you, but we do that where we need to.
I think we're in a pretty good position, not to say something can't possibly trip us up, but I think we're much more resilient today than we were when we had the exposures a few years back, and we feel pretty good about our position.
Karen Burton — SVP and CFO, STERIS plc
To follow up with your question on inflation, we don't expect anything that's, you know, outsized in terms of labor, pretty routine. In raw materials, as I mentioned, you know, we have got metals, plastics, electronics, chemicals are our largest inputs in terms of raw materials. Again, they represent less than 20% of COGS. We have assumed some upward pressure with the ultimate oil impact on those types of materials, and we have assumed some upward pressure because of oil for freight and fuel costs. I think we've done a measured job, not too aggressive, not too conservative, and taken outside views in terms of, well, how long this may last and ultimately what that is. It's in there.
If this war goes on for a long time and oil stays high for the whole year, we may be a little short.
Jason Bednar — Analyst, Piper Sandler
Okay. Specific to chips or other components, just is there any other inflationary assumptions that you had? Is it just assuming what we have here today extends through the year, or you've built in some upward cushion if prices continue to rise?
Dan Carestio — President and CEO, STERIS plc
Yeah. Keep in mind, like, chips in particular, as bad as that was for us a few years ago, our overall spend is in-irrelevant as it relates to chips. They're just incredibly important to be able to make a machine. It's not like, you know, our cost components, like we're making an automobile or something like that. There's hundreds of dollars of chips in a steam sterilizer, let's say, not $6,000 of chips, you know.
Jason Bednar — Analyst, Piper Sandler
Okay. Fair enough. All right. Thank you.
Michael Polark — Analyst, Wolfe Research
Hey, thank you for taking the follow-up. I'm interested in a vibe check on your life science customers. Obviously, you had a kind of recovery year in fiscal 2026, from a growth perspective, guiding to something similar in fiscal 2027. You know, that constituency seems to be coming out of an extended, you know, COVID boom bust cycle. There's enthusiasm around reshoring. Are you feeling that? Is there a world where life sciences has kind of, you know, say, better than average growth over the next couple of years?
Dan Carestio — President and CEO, STERIS plc
Yeah. Thanks, Mike. It's Dan. You know, I've been doing this a long time, and life sciences kind of does a cycle in general, or pharma does a cycle about every seven years or so. This one just happens to be post-pandemic related, but it's not new. We're optimistic. You know, the buying patterns are back on the capital side. Clearly saw that in this year's number. You know, our service business lagged a little bit this year, but some of that is, you know, parts, and some of that's a hangover of having a lousy capital year the year before and still having a lot of equipment on warranty. As that comes off, that should improve, you know, with this year's past deliveries, but it takes some time.
The real star in that business is our consumables, you know, growing 8%, high margin business, really continues to deliver for us. It's critically important for the performance of the sector or of our segment rather. Generally speaking, with the reshoring and some of the builds we're seeing on the East Coast and the Carolinas, there's a lot of good stuff going on in life sciences right now. What's not great is it's all big pharma right now that's doing well. What's not great is the lack of investment in some of the smaller stuff. That's really not our sweet spot anyways, and we feel like we're in pretty good position to, you know, help those customers that are establishing new operations here as they're reshoring.
Michael Polark — Analyst, Wolfe Research
If I can do one more. Thank you. I appreciate the comments on the small tuck-in deals in healthcare. Obviously $45 million, heard it loud and clear. It's small. On the MEDglas, is that a margin benefit in addition to a revenue opportunity, worth calling out? On GI consumables, would you be willing to frame, like, what, just for a better sense of, you know, what you're adding there?
Dan Carestio — President and CEO, STERIS plc
Yeah.
Michael Polark — Analyst, Wolfe Research
Thanks again.
Dan Carestio — President and CEO, STERIS plc
Yeah, sure, Mike. On the MEDglas, no, it's not really gonna be accretive to margins. It's a relatively low margin product, but it's really important. What it is, it's basically a very visually appealing glass that can be used in the walls of ORs as well as Sterile Processing Department that lends itself to easy cleaning, and you can even put graphics in there in such a way that it makes dark spaces really bright. It's been very popular as we sell OR rooms and as we build out SPDs. That's what that is. Keep in mind, that was a vertical deal, basically, where we bought our supplier that we were distributing for. In terms of the GI products, you know, these are basic products.
A lot of them have crossover with our STERIS Endoscopy. There's some small capital equipment in the portfolio that's beneficial. Really what we got is, you know, 20 or 25 sales reps that are established in the U.S. inventory that we can go out and chase more business from a GI products or device product standpoint.
Julie Winter — VP of Investor Relations and Corporate Communications, STERIS plc
Thank you all for taking the time to join us this morning to learn more about our performance in the quarter and our outlook for the year. We look forward to seeing many of you on the road this summer.
Source: STERIS plc earnings call transcript (2026-05-12). Management commentary and analyst Q&A are reproduced as delivered; speaker roles as stated on the call.

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