Stericycle, Inc.SRCL continues to grapple with weak Communication and Related Services (CRS) businesses due to decline in recall events and lower call volumes in communication solutions. Risks associated with foreign currency exchange rate fluctuations and high debt have also been weighing on the company’s performance.
In first-quarter 2020, the company’s earnings per share of 52 cents missed the Zacks Consensus Estimate by 20% and fell 8.8% year over year. Total revenues of $785 million missed the consensus mark by 2.5% and declined 5.4% year over year on a reported basis.
So far this year, shares of Stericycle have declined 6.8% against 16.9% decline of the industry it belongs to.
Declining CRS Businesses
Stericycle’s CRS businesses have been weak for quite some time, weighing on its top line. The CRS business is witnessing lower revenues due to decline in recall events and lower call volumes in communication solutions. Notably, CRS revenues declined 45.1% year over year in first-quarter 2020. In 2019 and 2018, CRS revenues decreased 30.4% and 18.2%, year over year, respectively. Also, lease exit costs associated with the closure/consolidation of call centers in Domestic CRS are a headwind.
Foreign Currency Exchange Rate Fluctuations
Vast global presence exposes Stericycle to the risks associated with foreign currency exchange rate fluctuations. The company serves a diverse customer base of more than one million customers, with operations in 20 different markets outside the United States. It operates in all the major international markets including Argentina, Austria, Australia, Belgium, Brazil, Canada, Chile, France, Germany, Ireland, Japan, Luxembourg, Mexico, the Netherlands, Portugal, Republic of Korea, Romania, Singapore, Spain and the United Kingdom, with business transactions in different currencies other than the U.S. dollar.
Notably, during first-quarter 2020, foreign exchange rates reduced revenues by $10.5 million. In 2019, 2018 and 2017, foreign exchange rates had reduced revenues by $67.8 million, $26.8 million and $12.3 million, respectively.
Debt Woe Stays
Stericycle has a debt-laden balance sheet. Total debt at the end of first-quarter 2020 was $3.02 billion, compared with $3.12 billion at the end of the prior quarter. Total debt to total capital ratio of 0.58 was higher than the previous quarter’s 0.57. An increase in debt-to-capitalization ratio indicates higher risk of insolvency in challenging times.
Further, the company’s cash and cash equivalent of $36 million at the end of the first quarter was well below this debt level, underscoring that the company doesn’t have enough cash to meet its debt burden. Also, the cash level is not adequate to pay back the short-term debt of $186 million.
Zacks Rank and Stocks to Consider
Stericycle currently carries a Zacks Rank #5 (Strong Sell).
Some better-ranked stocks in the broader Zacks Business Services sector are DocuSign DOCU, SPS Commerce SPSC and SailPoint Technologies Holdings, Inc. SAIL. All the stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The long-term expected earnings per share (three to five years) growth rate for DocuSign, SPS Commerce and SailPoint is 47%, 15% and 15%, respectively.
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