Stericycle Beats by a Penny


Stericycle Inc. (SRCL) delivered adjusted earnings per share (EPS) of 84 cents in the third quarter of fiscal 2012, up 17% from 72 cents in the prior-year quarter. Adjusted EPS beat the Zacks Consensus Estimate by a cent.

The quarter noted some special items including acquisition expenses of 3 cents per share, restructuring costs and plant closure expenses of 2 cents per share and a loss on sale of business of 4 cents per share. The prior-year quarter included acquisition costs of 4 cents per share. Including these items, EPS amounted to 75 cents in the reported quarter compared with 68 cents in the year-ago quarter.

Total revenue increased 14% year over year to $480 million in the quarter, ahead of the Zacks Consensus Estimate of $478 million. Acquisitions contributed $31.5 million to revenues while foreign exchange had a negative impact of $8 million.

Domestic revenues were $348.2 million and international revenues totaled $132.3 million. Domestic internal growth rate was up 10%, with small quantity climbing 11% and large quantity up 9%.

Cost and Margins

Cost of sales increased to $253 million in the quarter from $220 million in the year-ago quarter. Gross profit increased to $215.6 million from $190.1 million in the year-earlier quarter. However, gross margin contracted 30 basis points year over year to 44.9%.

Selling, general and administrative expenses increased 13% to $82.2 million in the quarter from $72.6 million in the year-ago quarter. Income from operations improved to $125 million from $111 million in the prior-year quarter. However, operating margin declined 30 basis points year over year to 26.1%.

Financial Position

As of September 30, 2012, cash and cash equivalents of Stericycle amounted to $16.2 million compared with $54.2 million as of June 30, 2012. The debt-to-capitalization ratio improved to 47% as of September 30, 2012 from 50% as of June 30, 2012. Cash from operations was $277 million in the first nine months of fiscal 2012 versus $215 million in the comparable period last year.

Stericycle repurchased over 43,500 shares for $3.9 million in the quarter under its authorization program. The company has 4.2 million shares remaining under its existing share repurchase authorization.

During the quarter, the company completed twelve acquisitions, out of which three were in domestic locations and the rest overseas.


Management provided EPS guidance in the range of $3.27 to $3.29 for full year 2012 and expects revenues in the range of $1.87 billion to $1.9 billion for the same period. For 2013, the company anticipates EPS to be in the range of $3.62 to $3.67, and revenue in the range of $2.06 billion to $2.09 billion. 

Free cash flow is expected to range between $319 million and $327 million in 2012 and $350 million to $355 million for 2013.

Our Take

The company is witnessing strong growth worldwide, driven by new account acquisition and expansion of its portfolio of service offerings. Its acquisition pipeline remains robust with over $100 million in annualized revenues across various geographies and lines of business.

Stericycle offers multiple service offerings to its customers, which add to the value of each account. For its small quantity customers, services include Steri-Safe and clinical compliance offerings and for large quantity customers - Sharps Management, pharma waste and Integrated Waste Services.

With currently 80% of the large quantity and 70% of the small quantity customers using one of Stericycle’s current service offerings, the adoption of its multiple services could more than double or even triple its revenues. Currently, the shares of Stericycle retain a Zacks #2 Rank (short-term Buy rating).

Based in Lake Forest, Illinois, Stericycle Inc. is a leading provider of regulated medical waste management and product recall and return services in the U.S. It operates a national medical waste management network that caters to medical schools, hospitals, and other healthcare providers. 

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