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Sartorius Stedim Earnings: COVID-19 Demand Retreats Along With Profits

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Sartorius Stedim Biotech SA
(DIM)

Wide-moat Sartorius Stedim DIM (Sartorius Ag’s bioprocess subsidiary) revealed a tough start to 2023, as previous COVID-19 tailwinds turned into headwinds. Management maintained its guidance for 2023, though. And while we have tinkered with our near-term assumptions, these minor changes did not materially affect our EUR 306 fair value estimate.

During the quarter, COVID-19-related sales largely disappeared, and the company’s financial results suffered in comparison with the strong period last year that included substantial COVID-19-related sales. In the quarter, sales declined 17% in constant currency, reflecting the near disappearance of COVID-19-related revenue and customer destocking in its other sales. Adjusted EBITDA decreased by 28%, with margins contracting to 30% on negative operating leverage in its fixed cost base on the sales decline even as the company was able to pass on most of the inflationary pressures in its costs to customers through price increases. Looking forward, order intake decreased a whopping 38% year over year, as customers appear likely to reduce their inventories built through the pandemic period, and we think the shares (down 9%) probably reflected this anticipation of continued weakness in the near term and the potential that management’s view of a second-half turnaround may be too optimistic.

Management stuck to its full-year outlook, suggesting an uptick in demand after lapping COVID-19 headwinds and customer destocking activities that started in the second half of last year. That 2023 outlook includes low-single-digit organic revenue growth and an adjusted EBITDA margin of 35% that is well above first-quarter levels on expected volume increases. Even if management is wrong about the timing, in the long run, strong biopharmaceutical growth should continue to drive demand for its life science tools, and we remain optimistic about the firm’s longer-term prospects, including its EUR 4.4 billion revenue goal for 2025.

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.

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Julie Utterback

Senior Equity Analyst
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Julie Utterback is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. Within the healthcare industry, she covers medical technology and service companies. She is also the chairperson of the equity research team’s capital allocation methodology.

Utterback joined Morningstar in 2005 as an equity analyst in the healthcare industry. At that time, she covered medical technology companies, including orthopedic device, medical equipment, and cardiac device firms. In 2010, she joined Morningstar's credit research team, initiating coverage of the entire healthcare industry and generally helping the organization expand and maintain its credit coverage across many industries. She held that senior credit analyst role until April 2019, when she returned to the equity team to cover medical technology and service companies.

Prior to joining Morningstar, Utterback was an equity analyst at State Farm Insurance for several years. She holds a bachelor's degree in finance from the University of Illinois Urbana-Champaign. She also holds the Chartered Financial Analyst® designation.

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