Sotera Health (SHC) Q4 2025 earnings review
Sotera Marks 20 Years of Growth, Nelson Labs Reverses Trend
Sotera Health capped off its 20th consecutive year of revenue growth with a solid Q4. Total net revenues increased 4.6% YoY to $303.4M, driven by continued double-digit growth in the core Sterigenics segment. Most notably, Nelson Labs broke its three-quarter streak of revenue contraction, posting 2.3% YoY growth. Adjusted EPS grew $0.05 to $0.26 for the quarter. While Nordion revenue fell 12.3% due to expected Cobalt-60 harvest timing, the underlying business generated enough cash to continue aggressively paying down debt, reducing net leverage to 3.2x. The FY26 guidance projects a stable 5.0% to 6.5% constant currency revenue growth.
🐂 Bull Case
The long-awaited stabilization of Nelson Labs has arrived. After quarters of expert advisory service headwinds masking core lab growth, the segment successfully reversed into positive top-line growth (+2.3%) in Q4.
The company continues to deleverage systematically. Net leverage dropped from 3.7x at the end of 2024 to 3.2x in 25Q4, significantly de-risking the balance sheet and shifting enterprise value to equity holders.
🐻 Bear Case
Despite management touting operational execution, Q4 segment income growth lagged revenue growth in both Sterigenics and Nelson Labs due to inflation and higher costs.
While 2025 saw significant settlements in Illinois ($64.9M), the company still faces 83 personal injury claims in California and an Attorney General suit in New Mexico, keeping an unquantifiable tail risk alive.
⚖️ Verdict: 🟢
Bullish. The core Sterigenics business is a remarkably stable growth engine, Nelson Labs has finally turned the corner, and the balance sheet is materially stronger than a year ago. The guidance implies high visibility and confident execution.
Key Themes
Sterigenics Sustains Double-Digit Pace
Stable. The Sterigenics segment continues to carry the company, growing revenues by 10.6% YoY in Q4 ($198.4M). This marks the third consecutive quarter of growth near or above 10%, driven by favorable pricing and steady volume/mix recovery among core medical device and bioprocessing customers.
Nelson Labs Reverses to Growth
Reversing. Nelson Labs had been a drag on the top line for the first three quarters of 2025 due to a drop-off in Expert Advisory Services. In Q4, this trend reversed as the segment posted a 2.3% YoY revenue increase, proving that the underlying core lab testing improvements and favorable pricing have finally outpaced the advisory headwinds.
Relentless Deleveraging
Accelerating. Sotera utilized its robust cash flow to aggressively repair its balance sheet. The Net Leverage Ratio fell consistently throughout the year: 3.7x (24Q4) -> 3.6x (25Q1) -> 3.5x (25Q2) -> 3.3x (25Q3) -> 3.2x (25Q4). This discipline triggered a 25 basis point reduction in interest rates on its First Lien Term Loan earlier in the year, directly fueling the bottom line.
Inflation Outpacing Margin Improvements
Management's press release highlights 'meaningful margin improvement', but the segment data contradicts this positive narrative in Q4. Sterigenics revenue grew 10.6%, but segment income grew only 10.4%, explicitly blamed on inflation. Similarly, Nelson Labs revenue grew 2.3%, but segment income grew only 1.9% due to 'higher costs.' Operating leverage was negative in Q4 for these segments.
Nordion's Inherent Lumpiness
Stable. Nordion revenues plummeted 12.3% YoY in Q4. Management had telegraphed this, explaining that Cobalt-60 shipments were pulled forward into Q1 and Q3 by customers. While the full-year picture remains strong (+8.2%), this reactor harvest timing creates significant quarterly earnings volatility that obscures underlying core operational performance.
Ethylene Oxide (EO) Litigation Ticking Clock
Stable. While management heavily emphasized a victory in Georgia courts during Q3 and settled Illinois claims for $64.9M earlier in the year, the risk is not extinguished. Sotera still faces an Attorney General trial in New Mexico scheduled for mid-2026, and 83 personal injury claims in California moving toward trial in 2027.
High-Value Bioprocessing and Regulatory Testing
A key growth engine for Sotera's Nelson Labs is navigating new FDA guidelines (like USP 665) and supporting complex medical innovations, such as testing for the first-ever bionic pancreas. Integrating biocompatibility testing early in the R&D cycle secures long-term sterilization volumes for Sterigenics, reinforcing high switching costs for customers.
Other KPIs
Decelerating slightly from Q3's 52.7%, and down from 52.7% in 24Q4. The margin contraction in Q4 was driven by unfavorable product mix in Nordion and inflationary pressures across the other two segments, despite positive pricing actions.
Accelerating significantly from $224.2 million in FY24. This massive 28% jump in operating cash flow was achieved despite paying out millions in EO litigation settlements, highlighting the immense cash-generating power of the core businesses.
Guidance
Stable. Implies 5.0% to 6.5% constant currency growth (and ~6.0% to 7.5% reported growth after an estimated 100bps FX benefit). This matches their long-term structural targets and points to continued consistent demand without massive macroeconomic shocks.
Stable. Implies 5.5% to 7.0% constant currency growth. This is slightly faster than revenue growth, indicating that management expects modest margin expansion or operating leverage to return in FY26, overcoming Q4's inflationary squeeze.
Accelerating. The midpoint of $0.97 represents a nearly 13% increase over FY25's $0.86. The double-digit EPS growth outpaces EBITDA growth, driven heavily by lower interest expenses (guided to $135M-$145M, down from $155.7M in FY25) resulting from the company's aggressive deleveraging strategy.
Reversing. Higher than FY25's actual purchases of $138M. Management is moving forward with previously contemplated U.S. expansion projects and ongoing NESHAP regulatory enhancements.
Key Questions
Inflation vs. Pricing Power
In Q4, segment income growth lagged revenue growth in both Sterigenics and Nelson Labs due to inflation and higher costs. Is the 3-4% historical pricing target sufficient to maintain margins in 2026, or will you need to push pricing higher?
Nelson Labs Core vs. Advisory
Nelson Labs returned to positive revenue growth in Q4. Has the drag from Expert Advisory Services fully bottomed out, or was Q4's growth entirely reliant on overriding continued advisory declines with core lab volume?
California Litigation Risk
With 83 personal injury claims slated for trial in California starting in 2027, has the company established any legal reserves for these specific cases, or is the strategy entirely focused on summary judgments based on causation standards?