Daniel A. Carestio
President, Chief Executive Officer and Director at STERIS
Thanks, Mike, and good morning, everyone. Thank you for taking the time to participate in our fourth quarter and full-year call. I will cover a few of the highlights of the year and then address our outlook for fiscal 2024.
As you heard from Mike, we ended the year strong and grew revenue 9% on a constant-currency organic basis in fiscal 2023. This is impressive performance, in particular given the macro challenges we faced all year. We are cautiously optimistic. The supply chain challenges have eased in a meaningful way, and surgical procedure rates are improving. Our fourth quarter and full-year results are reflective of that.
At the business level, our Healthcare segment revenue ramped up throughout the year, culminating in 11% constant-currency organic growth for the year with very strong performance in the fourth quarter. Healthcare capital equipment grew 15% for the year on top of double-digit growth last year. The team did a great job working through the WIP inventory and shipped $50 million more capital equipment in the fourth quarter than we did in third. Having the components we needed to get those products out to our customers was essential and it was a huge lift by our supply chain and manufacturing teams.
While we still have pockets that are challenging, we are feeling much better about the availability and access to components for our capital equipment heading into fiscal 2024. In addition, our backlog continues to hover around $500 million despite the strong shipments during the quarter. $500 million is a very solid place to start the new fiscal year. Of note, our orders have shifted again towards large projects, which represented 50% of the capital equipment orders in the fourth quarter. Remember that large project orders tend to have longer lead times.
Healthcare consumables also finished the year strong, as we saw restocking of products as surgical procedures continued to increase sequentially. For the year, consumables revenue grew 5%, about in line with our long-term expectations, although revenue was a bit lumpier from a quarter-to-quarter perspective than we would normally anticipate. Our Healthcare service revenue finished strong growing 8% for the year with solid growth across all the business aspects.
Our AST segment grew 12% on a constant-currency organic basis for the year, despite a reduction in demand for single-use bioprocessing disposables. As healthcare procedures continue to rebound, the underlying demand for our products from core customers in med-tech remain very strong.
As mentioned last quarter, about 10% of the AST business is comprised of bioprocessing customers, which slowed for the first time during our third quarter. That trend continued into the fourth quarter where once again we saw a decline in revenue of about $5 million. We believe the trough will come in the first half of our new fiscal year. And while we would expect to return to sequential growth in the second half, we do not expect to return to year-over-year growth until fiscal 2025. Our customers in that space have made significant investments to expand their manufacturing capacity for the long-term growth and we have every belief that that growth will return once we work through the short-term destocking.
Turning to Life Sciences. Constant-currency organic revenue grew 5% for the year with a strong finish in the fourth quarter despite the reduction in bioprocessing and vaccine demand. As anticipated, the $10 million in capital equipment that we couldn't ship in the third quarter came through in the fourth, contributing to a record quarter of capital shipments.
Consumables also finished strong as we worked through supply chain challenges, including more normalized shipping to Asia Pacific and we were able to make progress towards more normal delivery times.
Service grew mid-single digits for the year with solid performance in equipment maintenance and installation of new capital equipment. Backlog is holding just over $100 million and that is a great place to start the new fiscal year.
Dental was about flat on a constant-currency organic basis for the year. Procedure volumes remained at approximately 95% of pre-COVID levels, due to the broader economic pressures impacting consumer spending. Based on market data, STERIS is performing better than market and benefiting from pricing and modest share gains.
Turning back to the P&L. Even with favorable pricing, gross margins were down 180 basis points for the year as our cost increased at a rate faster than we could recoup. We did a nice job managing SG&A in the year and improved EBIT margin by 10 basis points in the face of the gross margin declines. Unfortunately, part of that was due to lower incentive compensation for our people, which we will be working hard to get back in fiscal 2024.
Interest and taxes were a bit of a headwind to bottom line growth, but we finished fiscal 2023 at $8.20 in adjusted earnings per diluted share, an increase of 4% from fiscal 2022. While that is certainly lower than our standard earnings performance, our five-year CAGR for adjusted EPS is still an impressive 15%.
As I said in the beginning of the call, we feel optimistic heading into fiscal 2024. Our strong fourth quarter allowed us to level out our performance between fiscal years more than anticipated. We also saw nice signs of improvement, which began in the third quarter and then continued to improve sequentially, leaving us optimistic that we have a few tailwinds in fiscal 2024. In particular, we anticipate continued recovery of healthcare procedures and easing of supply chain issues, as well as foreign currency leveling out.
For fiscal 2024, total revenue is anticipated to grow 7% to 8% with about 100 basis points in positive foreign currency impact. Constant-currency organic revenue is expected to grow 6% to 7%. That includes about 200 basis points in favorable pricing.
Gross margins are expected to improve modestly as some of the headwinds faced in fiscal 2023 abate. EBIT margins are anticipated to be about flat as we absorb approximately $40 million from incentive compensation year-over-year and cost increases above and beyond normal inflation for material and labor of about $30 million.
Interest and taxes will be a bit of a headwind, some of which will be offset by reduced share count, reflecting the additional purchases made during fiscal 2023. Factoring in all of those moving pieces, our outlook for adjusted earnings per diluted share for fiscal 2024 is $8.55 to $8.75.
To assist you in your modeling, we do anticipate that our revenue and earnings will be weighted towards the second year -- second half of the year. In the first half, we anticipate continued impact from a reduction in bioprocessing demand, resulting in difficult comparisons within AST that will impact our growth and profitability. For both revenue and EPS, we would expect the split to be 45% in the first half and 55% in the second half.
As we look at our Healthcare capital equipment, backlog remains strong and we believe, in fiscal 2024, we will return to a normal cadence of shipments, which generally start lighter in the first quarter and then build throughout the year. Our plan assumes we get back to normal lead times by the end of the fiscal year.
And while we do not provide quarterly guidance, I would note that the anticipated cadence of capital equipment revenue, combined with a significantly higher interest expense and tough comparisons in AST with bioprocessing, we will limit our Q1 earnings growth potential.
That said, the tide is turning. We're feeling good about the direction where we are heading and the outlook we have provided for fiscal 2024. As we have said before, our continued long-term goal is to grow revenue mid- to high-single digits and leverage that growth to deliver double-digit growth in earnings. We strive to achieve this while also generating solid free cash flow, continuing to reduce our debt levels and grow our dividend.
Before we open for Q&A, I do want to make a few comments on the draft rules issued by the EPA last month. As you all know, over the past few years, we have made significant investments consistent with our practice of continuous improvement within our facilities. Our sustainable EO program and total permanent and closure[Phonetic] investments position us very well to comply with many of the draft requirements. We believe the EPA understands the weight of this regulation and its impact on the security of the vital U.S. sterile device supply chain, and we are confident there will be a reasonable outcome for the final rules. Behind the scenes, we are partnering with our industry association in terms of our response to the agency.
Thank you. And with that, I will turn the call back over to Julie to open it up for Q&A. Julie?
