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Stericycle (SRCL) Q2 Earnings Miss Estimates, Revenues Beat

Zacks Equity Research

Stericycle, Inc. SRCL reported mixed second-quarter 2019 results with earnings missing the Zacks Consensus Estimate but revenues beating the same.

Adjusted earnings of 56 cents per share lagged the Zacks Consensus Estimate by 27 cents and decreased 52.1% year over year. The decrease was due to lower SOP pricing, pricing pressure in Regulated Waste and Compliance Services (RWCS) and higher operating costs.

Total revenues came in at $845.9 million, which beat the consensus mark by roughly $2 million but declined 4.2% year over year on a reported basis and 0.8% on an organic basis.

Effects of foreign exchange rates and SOP pricing reduced revenues by $20.6 million and $8.7 million, respectively. Previously, closed divestitures net of acquisitions reduced revenues by $10.6 million. Organic growth in Secure Information Destruction and RWCS was offset by lower SOP pricing. Communications and Related Services revenue was negatively impacted by fewer recall events.

The company continued its progress with business transformation in the quarter and completed the primary development of the enterprise resource planning (ERP). It is progressing well with readiness activities.

Shares of Stericycle gained 18.7% year to date, underperforming the 19.8% rally of the industry it belongs to.

Let’s check the numbers in detail.

Revenues by Service

RWCS revenues declined 1.8% year over year on a reported basis but increased 1.4% organically to $475 million. Secure Information Destruction Services revenues declined 0.3% year over year on a reported basis but improved 0.5% organically to $229.4 million.

Communication and Related Services revenues fell 22.2% year over year on a reported basis and 16.7% organically to $63.2 million. Manufacturing and Industrial Services revenues fell 11.3% year over year on a reported basis and 0.7% organically to $78.2 million.

Revenues by Geography

Revenues in the domestic and Canada segment totaled $700.4 million, down 1.6% year over year on a reported basis and 1.2% organically. The region contributed 83% to total revenues. International revenues fell 15.3% year over year to $145.4 million. It improved 1.1% organically. The region contributed 17% to total revenues.

Profitability Performance

Adjusted gross profit in the quarter amounted to $304.8 million, down 13.7% year over year. Adjusted gross profit margin was 36%, down from 40% in the prior-year quarter.

Adjusted EBITDA was $137.7 million, down 27.9% year over year. Adjusted EBITDA margin was 16.3%, down from 21.6% in the prior-year quarter.

Adjusted operating income was $105.6 million, down 33.2% year over year. Adjusted operating income margin was 12.5%, down from 17.9% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited the quarter with cash and cash equivalents of $34.5 million compared with $48.2 million at the end of the prior quarter. Long-term debt was $2.7 billion, roughly flat with the prior-quarter’s figure. The company generated $34.8 million of cash from operating activities and capex was $42.1 million in the quarter.

2019 Guidance

The company updated its 2019 guidance to reflect substantial decline in SOP pricing, higher interest expense, continuing cost pressures and impact of foreign exchange rates.

Adjusted EPS is now expected in the range of $2.50 to $2.85, compared with the previous expectation of $3.32 to $3.72. The Zacks Consensus Estimate is pegged at $2.92.

Revenues are anticipated in the range of $3.345 to $3.405 billion compared with the prior anticipation of $3.408-$3.533 billion. The Zacks Consensus Estimate stands at $3.39 billion.

Zacks Rank & Upcoming Releases

Stericycle currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Zacks Business Services sector are awaiting second-quarter 2019 results of key players like MAXIMUS MMS, Navigant Consulting NCI and Parsons PSN. While MAXIMUS and Navigant Consulting are scheduled to release results on Aug 8, Parsons is slated to report on Aug 13.

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