Shares of Stericycle, Inc. SRCL have gained 6.4% since its third-quarter 2019 earnings release on Oct 31, outperforming the 1.2% decline of the industry it belongs to.
The uptick can be attributed to the company’s better-than-expected bottom-line performance, increase in lower end of its adjusted earnings per share guidance for 2019, free cash flow generation (which helped the company in reducing its net debt) and progress in portfolio rationalization.
Notably, the company reported adjusted earnings per share of 80 cents, which beat the Zacks Consensus Estimate by 12 cents. However, the bottom linedeclined 22.3% year over yeardue to sorted office paper (SOP) pricing, foreign exchange impacts, higher operating costs, higher interest expense and the absence of gains on share repurchases in the reported quarter (as compared with the year-ago quarter), which were, partially offset by a tax benefit.
Adjusted EPS for 2019 is now anticipated in the range of $2.55-$2.70 million compared with the previously guided range of $2.50-$2.85 million. The current Zacks Consensus Estimate of $2.61 lies within the updated guided range.
Free cash flow of $77.2 million was generated in the reported quarter. This was utilized to reduce around $83 million of net debt (the largest decrease since the third quarter of 2017).
As part of the portfolio rationalization strategy, Stericycle made significant progress with the divestiture of three non-core businesses — the North American telephone answering services business, a retail pharmaceutical returns business and all of its Mexican operations — during October 2019. The company plans to use $38.1 million of gross proceeds from the three transactions to reduce net debt in the fourth quarter of 2019.
Stericycle, Inc. Price, Consensus and EPS Surprise
Stericycle, Inc. price-consensus-eps-surprise-chart | Stericycle, Inc. Quote
Let’s check out the quarterly numbers in detail.
Total revenues of $833.1 million missed the consensus mark by $9.5 million and declined 2.6% year over year on a reported basis and 0.7% on an organic basis. The top line was hurt by macroeconomic factors of SOP pricing and foreign exchange rates, which reduced revenues by $18.4 million and $13.3 million, respectively, and $12.7 million decline in the company’s Communication and Related Services (CRS) business (due to decline in recall events). These were, however, partially offset by organic growth of $14 million in Secure Information Destruction and $7.4 million in Regulated Waste and Compliance Services (RWCS).
Revenues by Service
RWCS revenues declined 0.4% year over year on a reported basis but increased 1.6% organically to $474.9 million. The segment accounted for 57% of total revenues.
Secure Information Destruction Services revenues declined 2.2% year over year on a reported basis and 2% organically to $222.6 million. The segment contributed 27% to total revenues.
CRS revenues fell 17.7% year over year on a reported basis and 12.4% organically to $58.9 million. The segment accounted for 7% of total revenues.
Manufacturing and Industrial Services revenues of $76.7 million fell 3% year over year on a reported basis but improved 0.4% organically.The segment contributed 9% to total revenues.
Revenues by Geography
Revenues from the Domestic and Canada were $689.6 million, down 2% year over year on a reported basis and 2.1% organically. The region accounted for 83% of total revenues.
International revenues of $143.5 million fell 5% year over year but improved 5.9% organically. The region contributed 17% to total revenues.
Adjusted gross profit in the reported quarter amounted to $299.2 million, down 12.8% year over year. Adjusted gross profit margin was 35.9%, down from 40.2% in the prior-year quarter.
Adjusted EBITDA was $150.5 million, down 18.2% year over year. The decline was driven by $20.5 million from SOP pricing and foreign exchange impact and $11.0 million in higher operating costs related to hazardous waste operations.Adjusted EBITDA margin was 18.1%, down from 21.5% reported in the prior-year quarter.
Adjusted operating income was $118.8 million, down 21.7% year over year. Adjusted operating income margin was 14.3%, down from 17.8% in the prior-year quarter.
Balance Sheet & Cash Flow
Stericycle exited third-quarter 2019 with cash and cash equivalents of $30.8 million compared with $34.5 million at the end of the prior quarter. Long-term debt came in at $2.62 billion compared with $2.69 billion at the end of the prior quarter.
The company generated $130.2 million of cash from operating activities and capex was $53 million in the quarter.
The company updated its 2019 guidance to reflect the impact of divestitures closed through October 31.
Revenues are now anticipated in the range of $3.30 to $3.34 billion compared with the prior anticipation of $3.35-$3.41 billion. Adjusted EBITDA is now anticipated to lie between $575 million and $595 million compared with the prior guided range of $575-$615 million. Capital expenditures are now expected between $180 million and $200 million compared with the prior guided range of $170-$190 million.
Zacks Rank & Upcoming Releases
Stericycle currently carries a Zacks Rank #3 (Hold). 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 third-quarter 2019 earnings of key players like Genpact G, Green Dot GDOT and Envestnet ENV, each scheduled to release results on Nov 7.
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