Sotera Health Q1 2025: Revenue Rises Amid Settlement-Driven EPS Miss

Sotera Health (NASDAQ: STRA) reported mixed results for its first quarter of 2025, with top-line growth outperforming expectations while earnings per share (EPS) fell short due to a one-time legal settlement. The company’s financial performance highlights the interplay between operational resilience and external challenges, offering investors a nuanced view of its prospects.

Revenue Growth Driven by Nordion and Pricing Strength

Sotera’s net revenues rose 2.6% year-over-year to $255 million, slightly exceeding analyst expectations. On a constant currency basis, growth accelerated to 4.4%, underscoring underlying demand. The gains were uneven across segments:

• Sterigenics, the sterilization services arm, saw a 1.9% revenue increase to $170 million, fueled by pricing improvements. However, foreign currency headwinds and inflationary pressures tempered margins.
• Nordion, which supplies medical isotopes, delivered a standout 35.6% revenue surge to $33 million, driven by higher volumes and optimized reactor harvest schedules.
• Nelson Labs, the testing and advisory segment, struggled with a 9.3% revenue decline to $52 million, as lower advisory service demand and currency impacts offset pricing gains in core lab services.

EPS Miss Rooted in a One-Time Settlement

The company reported a net loss of $13 million ($0.05 per diluted share), a stark contrast to Q1 2024’s $6 million profit. This was primarily due to a $31 million pre-tax settlement tied to ethylene oxide (EO) emissions from Sterigenics’ facilities. Excluding this charge and other adjustments, Adjusted EPS rose to $0.14, a $0.01 improvement over last year.

Adjusted Metrics Signal Operational Strength

Despite the headline loss, non-GAAP metrics painted a brighter picture:
- Adjusted EBITDA increased 8.8% to $122 million, reflecting cost discipline and volume growth at Nordion.
- The company reaffirmed its full-year outlook for 4.0%-6.0% revenue growth and 4.5%-6.5% Adjusted EBITDA growth, with an Adjusted EPS target of $0.70–$0.76.

Key Risks and Opportunities

• EO Litigation: The settlement resolves 97 pending claims but leaves Sotera exposed to future lawsuits and regulatory scrutiny. Ongoing compliance costs could pressure margins.
• Currency and Inflation: Foreign exchange headwinds are now projected to reduce revenue growth by 1.25% and EBITDA by 1.5% in 2025, down from earlier estimates but still significant.
• Nordion’s Potential: The segment’s reactor harvest schedule and cobalt-60 supply chain stability could drive future growth, as demand for medical isotopes remains robust.

Conclusion: Look Beyond the EPS Miss

Sotera’s Q1 results are a reminder that one-time expenses can distort short-term performance. While the EO settlement dented EPS, the company’s operational progress—evident in Nordion’s growth and improved Adjusted EBITDA—supports its long-term outlook. With debt under control ($2.3 billion, net leverage of 3.6x) and a strengthened credit facility, Sotera appears positioned to navigate regulatory and macroeconomic headwinds.

Investors should weigh the risks of ongoing litigation against the company’s mid-single-digit revenue growth targets and its role in critical healthcare infrastructure. For now, the stock’s valuation—trading at 12.4x trailing 12-month Adjusted EBITDA—suggests a cautious optimism. Sotera’s ability to sustain Adjusted EBITDA growth and resolve EO-related liabilities will be key to unlocking shareholder value.

In sum, Sotera Health’s Q1 results are a mixed bag, but the core business shows resilience. While the EPS miss raises near-term concerns, the company’s adjusted metrics and reaffirmed guidance indicate that its fundamentals remain intact—if it can manage its legal and operational challenges.