Stericycle Beats Estimate - Analyst Blog

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Stericycle Inc. ( SRCL ) delivered an adjusted EPS of 76 cents in the fourth quarter of fiscal 2011, up 29.6% from the prior-year quarter of 69 cents. Adjusted EPS surpassed the Zacks Consensus Estimate of 74 cents.

The quarter noted some special items including acquisition expenses of 1 cent per share and restructuring costs of 3 cents per share. The prior-year quarter noted acquisition costs of 7 cents per share and restructuring costs of 4 cents per share. Including these items, EPS amounted to 74 cents in the reported quarter compared to 57 cents in the year-ago quarter.

Total revenue increased 13.5% year over year to $446.6 million in the reported quarter, exceeding the Zacks Consensus Estimate of $445 million. Acquisition less than twelve months old contributed $48.9 million to revenues. The increase was offset by $2.5 million from the impact of foreign exchange.

Domestic revenues were $316.9 million; return, recall revenues amounted to $29.4 million; and international revenues totaled $129.6 million, in the reported quarter. The domestic internal growth rate was up 8%, with small quantity climbing up 9% and large quantity 6%.

Fiscal 2011 Performance

In the full year 2011, adjusted EPS increased 13.1% to $2.85 from $2.52 in the full year 2010.  Adjusted EPS was higher than the Zacks Consensus Estimate of $2.82.

Including some special items, EPS amounted to $2.69 in the year, an increase of 12.6% compared with $2.39 in full year 2010.

Total revenue in 2011 increased 16.4% year over year to $1.7 billion. Acquisition less than twelve months contributed $158.2 million while foreign exchange added $11.2 million to the top-line growth.

Cost and Margins

Cost of sales increased to $234 million in the quarter versus $201 million in the year-ago quarter. Gross profit increased to $202 million from $182 million in the year-earlier quarter. However, gross margin contracted 130 basis points year over year to 45.1%.

Selling, general and administrative expenses increased to $76.9 million in the quarter from $70.4 million in the year-ago quarter. Income from operations improved to $117 million from $107 million in the prior-year quarter. However, operating margins declined 90 basis points year over year to 26.2%.

Financial Position

As of December 31, 2011, cash and cash equivalents of Stericycle amounted to $22.5 million compared with $79.3 million as of December 31, 2010. Debt-to-capitalization ratio declined marginally to 53% as of December 31, 2011, from 54% as of September 31, 2011. Cash from operations was $306.1 million in 2011 versus $325.7 in 2010.

Stericycle repurchased over 549,000 shares of common stock for $42.9 million in the quarter, under its authorization program. The company has authorization to purchase an additional 4.3 million shares.

During the quarter, the company completed 8 acquisitions, out of which 5 were based in domestic locations and 3 in international locations.

Outlook

Management provided EPS guidance in the range of $3.21 to $3.26 for full year 2012 and expects revenues in the range of $1.8 billion to $1.9 billion for the year.

Free cash flow is expected to range between $320 million and $325 million in 2012, with capital expenditure anticipated between $60 million and $65 million.

Our Take

The company witnesses strong growth worldwide, driven by new account acquisition and expansion of its portfolio of service offerings. Stericycle offers multiple service offerings to its customers, which add to the value of each account.

However, the recent spate of acquisitions is leading to higher overheads and integration-related costs, which could have an adverse impact on operating margins. Moreover, the business of medical waste disposal and regulations can change often; with new regulations being frequently adopted. Frequent change in regulations would impose new compliance requirements on Stericycle, alter its current method of doing business, and ultimately increase costs and compress margins.

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.

The company operates in the U.S., Argentina, Canada, Mexico, Chile, the United Kingdom, Ireland and Romania, with a network of 89 processing or combined processing and collection sites, and an additional 97 transfer, collection, or combined transfer and collection sites. It competes with US Ecology Inc. ( ECOL ) and Waste Management ( WM ). Currently, the shares of Stericycle retain a Zacks#4 Rank (short-term "Sell" rating).


 
US ECOLOGY INC ( ECOL ): Free Stock Analysis Report
 
STERICYCLE INC ( SRCL ): Free Stock Analysis Report
 
WASTE MGMT-NEW ( WM ): Free Stock Analysis Report
 
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: ECOL , SRCL , WM

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