Healthcare services company Sotera Health (NASDAQ:) met Wall Street’s revenue expectations in Q4 CY2024, but sales fell by 6.5% year on year to $290.2 million. Its non-GAAP profit of $0.21 per share was in line with analysts’ consensus estimates.
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Sotera Health Company (SHC) Q4 CY2024 Highlights:
- Revenue: $290.2 million vs analyst estimates of $289.7 million (6.5% year-on-year decline, in line)
- Adjusted EPS: $0.21 vs analyst estimates of $0.20 (in line)
- Adjusted EBITDA: $152.9 million vs analyst estimates of $151.7 million (52.7% margin, 0.8% beat)
- Adjusted EPS guidance for the upcoming financial year 2025 is $0.73 at the midpoint, missing analyst estimates by 6.9%
- Operating Margin: 30%, down from 33.5% in the same quarter last year
- Free Cash Flow was -$10.15 million, down from $48.3 million in the same quarter last year
- Organic Revenue fell 5.2% year on year (22.7% in the same quarter last year)
- Market Capitalization: $3.86 billion
“I am pleased to announce another year of top- and bottom-line growth in 2024. This marks the 19th consecutive year of annual revenue growth for the company,” said Chairman and Chief Executive Officer, Michael B. Petras,
Company Overview
Founded in 2017, Sotera Health (NASDAQ:SHC) provides sterilization, laboratory testing, and consulting services to the medical device, pharmaceutical, and biotechnology
Research Tools & Consumables
The life sciences subsector specializing in research tools and consumables enables scientific discoveries across academia, biotechnology, and pharmaceuticals. These firms supply a wide range of essential laboratory products, ensuring a recurring revenue stream through repeat purchases and replenishment. Their business models benefit from strong customer loyalty, a diversified product portfolio, and exposure to both the research and clinical markets. However, challenges include high R&D investment to maintain technological leadership, pricing pressures from budget-conscious institutions, and vulnerability to fluctuations in research funding cycles. Looking ahead, this subsector stands to benefit from tailwinds such as growing demand for tools supporting emerging fields like synthetic biology and personalized medicine. There is also a rise in automation and AI-driven solutions in laboratories that could create new opportunities to sell tools and consumables. Nevertheless, headwinds exist. These companies tend to be at the mercy of supply chain disruptions and sensitivity to macroeconomic conditions that impact funding for research initiatives.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Sotera Health Company’s sales grew at a mediocre 7.2% compounded annual growth rate over the last five years. This fell short of our benchmark for the healthcare sector and is a poor baseline for our analysis.
Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Sotera Health Company’s recent history shows its demand slowed as its annualized revenue growth of 4.7% over the last two years is below its five-year trend. 
We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, Sotera Health Company’s organic revenue averaged 5.3% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results. 
This quarter, Sotera Health Company reported a rather uninspiring 6.5% year-on-year revenue decline to $290.2 million of revenue, in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months, similar to its two-year rate. This projection is above the sector average and suggests its newer products and services will help support its recent top-line performance.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Sotera Health Company has been an efficient company over the last five years. It was one of the more profitable businesses in the healthcare sector, boasting an average operating margin of 26.2%.
Looking at the trend in its profitability, Sotera Health Company’s operating margin rose by 1.9 percentage points over the last five years, as its sales growth gave it operating leverage. The company’s two-year trajectory shows its performance was mostly driven by its recent improvements.
This quarter, Sotera Health Company generated an operating profit margin of 30%, down 3.5 percentage points year on year. This contraction shows it was recently less efficient because its expenses increased relative to its revenue.
Earnings Per Share
We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.
Sotera Health Company’s EPS grew at a remarkable 10.7% compounded annual growth rate over the last five years, higher than its 7.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into Sotera Health Company’s earnings to better understand the drivers of its performance. As we mentioned earlier, Sotera Health Company’s operating margin declined this quarter but expanded by 1.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.
In Q4, Sotera Health Company reported EPS at $0.21, down from $0.23 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects Sotera Health Company’s full-year EPS of $0.70 to grow 11%.
Key Takeaways from Sotera Health Company’s Q4 Results
It was encouraging to see Sotera Health Company beat analysts’ EPS expectations this quarter. We were also happy its organic revenue was in line with Wall Street’s estimates. On the other hand, its full-year EPS guidance missed significantly. Overall, this was a softer quarter. The stock traded down 2.1% to $13.35 immediately following the results.
Sotera Health Company may have had a tough quarter, but does that actually create an opportunity to invest right now? The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.
