Dan Carestio
President and Chief Executive Officer at STERIS
Thanks, Mike, and good morning, everyone. Thank you for taking the time to join us to hear more about our second quarter performance and our outlook for the rest of the fiscal year. We continue to see strong demand for our products and services. And as you've heard from Mike, we had a solid quarter despite the ongoing macroeconomic challenges. I will review the highlights of the quarter and then shift my commentary to our outlook. Total company constant currency organic revenue growth was 7% in the quarter. Once again, foreign currency was more impactful than previously planned on our as-reported revenue, but we are pleased with our operational performance. From a segment perspective, Healthcare constant currency organic revenue grew 7% in the quarter. As we discussed last quarter, by August, we had an improved visibility on supply chain challenges and that we anticipated that we would start to see better component deliveries in the quarter. We received several key components, and we're able to step up our shipments in September. We continue to expect to see significant levels of capital shipments in the second half based on our backlog, the inventory of key components that we have or will continue to receive. Reflecting that scenario, capital equipment and service growth remained solid in the quarter as we continue to see good demand from our customers. Consumables were about flat on a constant currency organic basis.
Our consumable growth is limited due to a lack of procedure growth on a year-over-year basis. As we have said before, we do not expect a significant pickup in procedures in the coming months, but we are optimistic we will get back to 100% pre-pandemic levels over time. Hospital capital spending remains robust as evidenced by our Healthcare backlog, which totaled over $500 million at the end of the quarter. Orders for the quarter were approximately 60% for replacement products and 40% for large projects. Despite the uptick in shipments at the end of the quarter, we believe approximately $60 million in capital equipment shipments were delayed in our second quarter, further strengthening our confidence in the second half. Longer term, our portfolio at STERIS is essential to surgeries, either directly in the operating room or in the core support sterile processing department and we believe this provides us some insulation to our revenue base from our customers' rising cost of capital. Moving on to AST. AST grew constant currency organic revenue 19% in the second quarter as we continue to benefit from underlying demand from our core customers. In the second quarter, MevX improved significantly on both a year-over-year basis and sequentially, which pushed our growth rate into the high teens. As you have already witnessed, shipments can be lumpy with this segment of the business. Similar to Life Sciences, these are large pieces of capital equipment that are not booked as revenue until they are fully installed and tested. From a profit perspective, increased energy costs, both in the U.S. and internationally, are impacting margins for AST.
All signs indicate this will continue at least through the winter. We continue to look for ways to recoup these costs as the contracts allow in the timing of our increases. Life Sciences revenue was flat on a constant currency organic basis compared with the prior year. Solid service revenue growth was offset by declines in both capital and consumables. We believe capital equipment shipments are just a matter of timing as about $10 million slipped into the third quarter versus our expectations. And as a reminder, the business had a very strong shipment quarter in Q1. Also, our backlog continues to hover around $100 million. We are optimistic about the long-term demand for our capital equipment in this segment. On the consumables side, we're about flat from a constant currency organic revenue perspective. This is primarily due to inventory management by our customers, in particular, in our barrier products line. Again, not concerned about the long-term underlying trends for the business as aseptic pharma production demand remains very strong. Our Dental segment declined 3% on a constant currency organic revenue perspective. While procedure volumes for Dental continue to hover around 95% of pre-COVID levels, year-over-year procedures have declined in the low single-digit range. We believe this is due to the current macroeconomic conditions. Despite the decline in revenue, operating margins were over 25% as we manage spending and experienced some relief on our supply chain costs.
Turning to our full year outlook. Constant currency organic revenue growth expectations of 10% remain unchanged. However, based on the ongoing foreign currency challenges, we are revising our as-reported revenue. As-reported revenue is now expected to grow 8%, a reduction of 1% from the prior expectations due to continued foreign currency fluctuations. For the year, currency is now expected to reduce as-reported revenue by $150 million and adjusted EPS by approximately $0.15. The primary drivers of this continue to be the weak euro and British pound. Reflected in our revenue outlook is improved pricing. We are now expecting around 250 basis points for the year. Combined, pricing and disciplined spending will contribute to higher-than-planned operating margins for the fiscal year. This will help offset the impacts from foreign currency and additional supply chain inflation. For the year, we now expect an incremental $90 million in extraordinary supply chain and labor cost inflation, an increase of $20 million over our prior expectations. Factoring in these elements, our expectations for earnings are unchanged at the $8.40 to $8.60 range for the full fiscal year. However, with an additional 5% impact from foreign currency, we believe the high end of that range is less likely.
Overall, our business continues to perform very well in this environment. Our teams and portfolios continue to come together to better meet the needs of our customers and the breadth of our offering allows us to take advantage of several significant trends in the industry by leveraging our relationships to cross-sell within business segments and deliver value to our customers. Before we open for Q&A, I did want to address the challenges the industry is facing on ethylene oxide. As you all know, ethylene oxide is essential to the supply of sterile single-use medical devices throughout the world. To date, the industry does not have an alternative to EO. And currently, in the U.S., there is very limited capacity to manage the long-term growth expectations for the medical products industry's demand for ethylene oxide processing technology. At STERIS, we take our responsibility very seriously as a provider of these crucial services and have always been committed to strict regulatory compliance and quality standards for the safety of our people, our facilities and the communities in which we operate. We are stewards of the long-term success of our business, which I believe is exemplified by our actions. We have regularly updated our processes and equipment used within our facilities to reflect the adoption of new technology and deploy the best practices possible. In addition, we have led the industry in developing sustainable EO cycles, which significantly reduced the amount of EO gas used per cycle. And we have worked closely with the U.S. FDA to ease the regulatory transition for our customers so they can more easily adopt these cycles. This diligence is consistent with the way we have operated our contract sterilization business for many years. I am confident in how we have run and continue to run these facilities and the improvements we have made to our process within the AST segment.
With that, I will turn it over to Julie to begin the Q&A.
