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Stericycle (SRCL) Up 24.8% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Stericycle (SRCL). Shares have added about 24.8% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stericycle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Stericycle Lags Q1 Earnings Estimates

Stericycle reported lower-than-expected first-quarter 2020 results.

Earnings per share of 52 cents missed the Zacks Consensus Estimate by 20% and fell 8.8% year over year, mainly due to lower sorted office paper (SOP) pricing. This was partially offset by margin improvement, lower effective tax rate and related tax expenses, and reduced interest expenses.

Total revenues of $785 million missed the consensus mark by 2.5% and declined 5.4% year over year on a reported basis. The downfall was due to divestitures that hurt revenues by $38.4 million, and SOP pricing and foreign exchange rates that impacted revenues by $16.4 million and $10.2 million, respectively. Revenues were up 0.5% on an organic basis.

Due to economic uncertainty induced by the COVID-19 pandemic, Stericycle has withdrawn its full year financial guidance.

Revenues by Service

Regulated Waste and Compliance Services (RWCS) revenues declined 0.4% year over year to $467.3 million. The segment contributed 60% to total revenues. Secure Information Destruction (SID) revenues declined 6% year over year to $218.1 million. The segment contributed 28% to total revenues. CRS revenues fell 45.1% year over year to $33.6 million. The segment contributed 4% to total revenues. Manufacturing and Industrial (M&I) revenues of $66 million fell 2.5% year over year. The segment contributed 8% to total revenues. Organic revenue growth for RWCS, SID and Manufacturing and Industrial M&I was 3.3%, 1.4% and 2.2% respectively. CRS organic revenues declined 0.5% year over year.

Revenues by Geography

Revenues from North America were $627.5 million, down 0.6% year over year. The region contributed 80% to total revenues. International revenues of $130.4 million fell 12.2% year over year. The region contributed 17% to total revenues.

Profitability Performance

Adjusted gross profit in the reported quarter amounted to $286.6 million, down 4.7% year over year. Adjusted gross profit margin was 36.5%, up from 36.2% in the prior-year quarter.

Adjusted operating income was $93.8 million, down 10.6% year over year. Adjusted operating income margin was 11.9%, down from 12.6% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited first-quarter 2020 with cash and cash equivalents of $36 million compared with $34.7 million at the end of Dec 31, 2019. Long-term debt came in at $2.5 billion compared with $2.6 billion at the end of the prior quarter.

The company generated $82.1 million of net cash from operating activities and capex was $39.6 million in the quarter. Free cash flow of $42.5 million was generated in the reported quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -63.39% due to these changes.

VGM Scores

At this time, Stericycle has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Stericycle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.



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