Steris (NYSE:STE) released fourth-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.
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Summary
Steris reported a 7% increase in total revenue for the fourth quarter of fiscal 2026, with organic revenue growth at 5% and gross margin slightly down due to inflation and tariffs.
Fiscal 2026 marked a record year with 9% revenue growth and 10% adjusted earnings per share growth, despite tariff impacts.
For fiscal 2027, Steris projects 7% to 8% revenue growth, with emphasis on organic growth and expansion through strategic acquisitions.
Healthcare and life sciences segments showed strong performance, with healthcare growing 9% and life sciences growing 9%, driven by capital equipment and service growth.
Management highlighted strategic initiatives, including a $1 billion share buyback authorization and investments in new facilities to support growth and efficiency.
Full Transcript
OPERATOR
Good day and welcome to the Steris plc fourth quarter 2026 financial results conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the Star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your touchtone phone. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Julie Winter, Investor Relations. Please go ahead.
Julie Winter (Investor Relations)
Thank you Chad and 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. And 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 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 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 SEC filings are available through 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 are 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. As caution, I will hand the call over to Karen.
Karen Burton (Senior Vice President and CFO)
Thank you Julie and 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 in price. Gross margin for the quarter was 44% down 30 basis points versus the prior year. We continue to realize positive pricing which helped mitigate the impact of higher tariffs and inflation. EBITDA 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 United States, 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 dividend reinvest in our business, invest to grow through M and 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 1.2 times, well below our targets of 2 to 2 and a half times 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
Thanks Karen and, 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, so 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 in 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. US Procedure volume continues to grow mid single digits, a level we expect to be consistent in fiscal 2027. Procedure volume outside of the US 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 and 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 US 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 Science posted its own record year exceeding 250 million in operating profit for the first time with 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 for 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. And 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 to 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% to 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 2 acquisitions driving this contribution. In the fourth quarter, we vertically integrated our supplier for MedGlass walls, extending our reach from the US to global. In addition, early in the first quarter we acquired a family of gastrointestinal (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 to 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 to 7% constant currency organic and AST to grow 7 to 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 FY27, driving incremental operating expenses, including kicking off a multi year 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 to $11.30 growth of 9 to 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 US 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 problems 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 and A?
OPERATOR
Thank you. We will now begin the question and answer session. To ask a question, you May press star then 1 on your touchtone phone. To withdraw your question, please press star then 2. At this time we will pause momentarily to assemble our roster. And the first question will be from Brett Fishbin from KeyBank. Please go ahead.
Brett Fishbin (Equity Analyst)
Hello, good morning. Thanks for taking the questions. I just wanted to start off with one on the FY27 earnings guidance. I think you mentioned that you're thinking about operating margin expansion of approximately 50basis points at the high end of the range and was just curious if you could walk through like some of the moving pieces. I think there are some questions around the impact of inflation and energy prices and then also what you're thinking around tariffs as compared to FY26 as well as just the contribution from underlying performance.
Dan Carestio
All right, thanks Brett and good morning. We appreciate the question. I'll add a little bit of light to this and then Karen's going to 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 we're going to work on really, really hard to maximize that 50bps and that's really going to 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. The sort of upside in that is if we deliver a little better on the AST business just given the margin profile there. And Karen, I'll hand it over to you to handle some of the tariff related questions.
Karen Burton (Senior Vice President and CFO)
Great, thank you. Yeah. So 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. So in an odd twist, tariffs are an okay thing for us. Looking at 27 in terms of other opportunities, challenges, the bonus tailwind is about $20 million and as we look at and have incorporated energy in particularly oil driven costs, we have incorporated those. We have considered also how long this may last looked at forward rates but 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 low single digits exposure and when you look at our raw materials, we do have raw materials that are impacted by oil. That represents only about 20% of our cost of goods sold (COGS). And generally energy has certainly been meaningful, particularly to AST, but it is a small percentage of cost of goods sold (COGS) in AST as well. So hopefully that helps you.
Brett Fishbin (Equity Analyst)
Yeah, no, no, that's helpful. And then also just a question on guidance. I think you had some comments about the difficult comps in astronomy service to begin the year. So 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 one Q overall or if it was more specific to AST service given the comps. Thank you so much.
Dan Carestio
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 and then saw a bit of slowdown in Q3 where we saw some inventory pullback from our customers. And then this past quarter got a little weird just with the snowstorms. We probably lost 150 to 200 basis points of growth there. So if you sort of stack all that up, I think one would expect a slower start in the first half and then significantly improving in Q3 and then pretty easy comps in Q4.
OPERATOR
Thank you. And the next question will come from Mike Mattson from Needham and Company. Please go ahead.
Mike Mattson (Equity Analyst)
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 (Senior Vice President and CFO)
Yeah, this is Karen. I will answer that in terms of the USMCA review. A joint review has a July 1 deadline. All three governments have emphasized the importance of continuity and avoiding disruption, but no real movement in those discussions yet. So 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 Mattson (Equity Analyst)
Okay, understand. And 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?
Karen Burton (Senior Vice President and CFO)
Not really. I mean, we're pretty much fully spent on upgrading our facilities to 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. But there's no significant capital impact on us given where we are already with our facilities.
Mike Mattson (Equity Analyst)
Okay, got it. Thank You.
Karen Burton (Senior Vice President and CFO)
Yep. Thank you.
OPERATOR
And the next question is from Dave Turkley from Citizens. Please go ahead.
Dave Turkley (Equity Analyst)
Hey, good morning. You called out some tuck in M and A in health care 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
Thanks, Dave. I would say no. I mean, our M and 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 and A throughout the year. We're just calling these two out because they do have a material impact on the. The fiscal performance as we look next year of close to 100 basis points for health care. So in terms of the buyback, you know, Karen, shed some light on the tax that we. We pay as a result of moving money for doing distributions 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. But the reality is that we understand going forward that doing some level of consistent buyback is important for the health of our company. Got it. And you called out service in Applied Sterilization Technologies (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 what was going on there in the fourth quarter on the AST side. Yeah. Yeah. Thanks, Dave. It's just lumpiness of that business. We sell 20, 30 million dollars a year, and sometimes that can be in four orders. And if you shoot two of them in one quarter, one in another, the way it spreads out, you can have a quarter with very little equipment sales, but just equipment, service parts, and things like that. And then you could have the next quarter, you could ship two machines, and we're a hero. Right. So you kind of have to look at it in the year in aggregate, I guess.
Dave Turkley (Equity Analyst)
Thank you.
Dan Carestio
Sure thing.
OPERATOR
And the next question is from Mac Etalk from Stevens. Please go ahead.
Mac Etalk (Equity Analyst)
Hey, good afternoon. Thank you for taking my questions. Maybe just to follow up on some of the AST questions, you called out some Med Tech customers continuing to manage inventory levels carefully. So 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
Yes. I mean, the organic volume was less than what we would anticipated in the last two quarters. And 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. So that is what it is. They'll recover over time, the volume will come back, et cetera. But what we have seen, and maybe it's post tariff confidence in supply chains, maybe it's whatever. But you know, we've seen some inventory reduction across the broader customer segment. Right. In terms of medtech and what we know is this. What we know is procedural rates are still consistently growing. So 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. So we're seeing good top line sales from a lot of the large medtech companies that show good growth over the last couple quarters. So 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 quarters.
Mac Etalk (Equity Analyst)
Appreciate it. Thanks for the color there. And then secondly, Healthcare and Life Sciences both had a pretty decent quarter from a capital equipment perspective. Backlog did decline sequentially. So I just, I just kind of 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
I think a little bit on 26, we, we tend to ship a lot in Q4 and we tend to build a lot of capital capital and then we tend to push as much as we can just. And 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. So that's not abnormal for us to have a little bit 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 and 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 cost. Save cost. So it's not, I think we're in a pretty good position as we go forward with our large customers.
Mac Etalk (Equity Analyst)
I appreciate the call.
Dan Carestio
Thank you.
OPERATOR
The Next question is from Dave Windley from Jefferies. Please go ahead.
Dave Windley (Equity Analyst)
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 the number of facilities. I wondered how many or what operating efficiency you might expect to expect to pick up when that is operational and kind of essentially the motivations for, for taking this step and consolidating into one facility. Thanks.
Dan Carestio
Yeah, thank you, Dave. This is Dan. First off, we've got three different facilities. Two of them happen to be here locally and it just makes sense to consolidate. But 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 in our healthcare organization in particular, as most every system now is at least dual source to Steris. So 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. So with that, you know, over time there will be some cost benefit on the savings, but more important than that, it's really supporting the long term growth of a high growth, high margin business.
Dave Windley (Equity Analyst)
Got it. And then switching gears, I think I wanted to go back to your description on AST and the cadence that you were expecting for 27. 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 and is that coming back early in the year or more spread during the year? I was kind of juxtaposing the benefit of getting that push 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
Yeah, we thought about it a lot. We 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. And I think some of the large public healthcare systems commented on that in their earnings release. So 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 med tech sector where they'll be producing the products for set procedures.
Dave Windley (Equity Analyst)
Okay, thank you.
Dan Carestio
Thank you.
OPERATOR
And our next question is from Michael Pollack from Wolf Research. Please go ahead.
Michael Pollack (Equity Analyst)
Hi, good morning. A follow up on the margin guidance for fiscal 27. Two parter on tariffs. Karen or Dan, can you just remind US in fiscal 26 what was the total tariff headwind and what's considered in 27? And does 27 embed any contribution from refunds? That's first part. And the second part is the bonus tailwind that was spiked out. I guess I don't understand why that's being modeled. Was there overachievement in fiscal 26 and you're modeling normalization in fiscal 27. Thank you.
Karen Burton (Senior Vice President and CFO)
Thanks, Mike. This is Karen. I can help you with these. In terms of tariffs, our incremental tariffs in 26 was 46 million, which puts us at a total tariff spend between 60 and 65 million. And that's what we're modeling for 27. We are not including any refunds in our 27 guidance. We have not recorded anything. When it comes, we will recognize it. And we've taken that position because it is difficult to know how quickly this will actually happen. On the bonus, you are correct. We did have overachievement in fiscal 26 and we are modeling 100% achievement in fiscal 27 as we usually do. So that's the differential of 20 million that I mentioned.
Michael Pollack (Equity Analyst)
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. What are you telling us there?
Dan Carestio
Yeah, so we've been working for a long time to really 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 process products down the line in the SPD without confirmation that you're in compliance, doing things that hopefully eliminate unnecessary steps for our customers. And then 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 Pollack (Equity Analyst)
Thank you. Thank you again.
OPERATOR
If you would like to ask a question, please press star then one. The next question is from Jason Bednar from Piper Sandler. Please go ahead.
Jason Bednar (Equity Analyst)
Thanks for taking the questions. I wanted to start here, everyone just maybe first in the larger buyback authorization. Definitely seems like a commitment Greater commitment than anything you've done historically. The authorization is twice the size, I think, of your last one. I think your comment here, 2 to 300 million is more than what you normally commit to. Just how should we think about executing against that authorization, 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 hard commitment to the ranges you provided here.
Karen Burton (Senior Vice President and CFO)
Thanks, Jason. This is Karen. Yeah, we are looking at and planning for a use of excess cash. And that's where the 200, the 300 is. You are correct. 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. So when we model the withholding tax, the lost interest potentially having to borrow to go bigger, it starts to not make sense. So that is our plan. And 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 (Equity Analyst)
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 and sourcing, what I think you've 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? And if you could maybe, Karen, layer on what's assumed in your guide here with respect to supply and cogs inflation. Thank you.
Dan Carestio
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 want to 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 basically any critical parts where we strategically hold excess inventory, which Karen doesn't love, I can assure you. But we do that where we need to. And so 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 (Senior Vice President and CFO)
And to follow up with your question on inflation, we don't expect anything that's outsized in terms of labor. Pretty routine. And in raw materials, as I mentioned, we have got metals, plastics, electronics, chemicals are largest inputs in terms of raw materials, but again, they represent less than 20% of COGS. So we have assumed some upward pressure with the ultimate the oil impact on those types of materials. And we have assumed some upward pressure because of oil for freight and fuel costs. But I think we've done a measured job, not too aggressive, not too conservative and, and taken outside views in terms of how long this may last and ultimately what that is. So 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 (Equity Analyst)
Okay. And specific to chips or other components, just. Is there any other inflationary assumptions that you have? 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
Yeah. Keep in mind, like chips in particular, as bad as that was for us a few years ago, our overall spend is irrelevant as it relates to chips. They're just incredibly important to be able to make a machine. But it's not like 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? You know.
Jason Bednar (Equity Analyst)
Okay, fair enough. All right, thank you.
OPERATOR
And the next question is a follow up question from Michael Pollark from Wolf Research. Please go ahead.
Michael Pollack (Equity Analyst)
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 26 from a growth perspective, guiding to something similar in fiscal 27. That constituency seems to be coming out of an extended Covid boom bust cycle. There's enthusiasm around reshoring. Are you feeling that? Is there a world where Life Sciences has kind of say better than average growth over the next couple years?
Dan Carestio
Yeah. Thanks, Mike. Stan, I've been doing this a long time and Life sciences kind of does this 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? Yeah, 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 take some time. But 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 of our segment rather. But 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. But that's really not our sweet spot anyways. And we feel like we're in a pretty good position to help those customers that are establishing new operations here as they're reshoring.
Michael Pollack (Equity Analyst)
If I can do one more. Thank you. I appreciate the comments on the small tuck in deals in health care. Obviously 45 million heard it loud and clear.
Dan Carestio
It's small. But on the Med Glass, is that a margin benefit in addition to a revenue opportunity worth calling out? And then on GI consumables, would you be willing to frame like what? Just for a better sense of what you're adding there. Thanks again. Yeah, sure. Mike. On the Med Glass, no, it's not really going to be accretive to margins, a relatively low margin product. But it's really important. And 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. And it's been very popular as we sell or rooms and as we build out SPD's. So that's what that is. And 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, these are basic products. A lot of them have crossover with our steriscendoscopy. There's some small capital equipment in the portfolio that's beneficial, but really what we got is 20 or 25 sales reps that are established in the US inventory that we can go out and chase more business from a GI products or device product standpoint.
OPERATOR
And thank you ladies and gentlemen. This now concludes our question and answer session. I would like to turn the conference back to Julie Winter for any closing remarks.
Julie Winter (Investor Relations)
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. And we look forward to seeing many of you on the road this summer.
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