Stericycle Inc.
(
SRCL
) delivered adjusted earnings per share (
EPS
) of 78 cents in the first quarter of fiscal 2012, up 13% from 69
cents in the prior-year quarter. Adjusted EPS surpassed the Zacks
Consensus Estimate of 76 cents.
The quarter noted some special items including acquisition
expenses of 2 cents per share and adjustments of contingent
consideration to fair value, and other items of 1 cent per share.
The prior-year quarter noted acquisition costs of 7 cents per share
and a benefit from adjustments of contingent consideration to fair
value, and other items of 2 cents per share.
Including these items, EPS amounted to 75 cents in the reported
quarter compared with 64 cents in the year-ago quarter.
Total revenue increased 16% year over year to $460 million in
the first quarter, exceeding the Zacks Consensus Estimate of $453
million. Acquisitions contributed $41 million to revenues while
foreign exchange had a negative impact of $3.3 million.
Domestic revenues were $329 million; return and recall revenues
amounted to $35.8 million; and international revenues totaled
$130.9 million. The domestic internal growth rate was up 9%, with
small quantity climbing up 10% and large quantity 8%.
Cost and Margins
Cost of sales increased to $244 million in the quarter from $206
million in the year-ago quarter. Gross profit increased to $205
million from $182 million in the year-earlier quarter. However,
gross margin contracted 120 basis points year over year to
44.6%.
Selling, general and administrative expenses increased 11% to
$77.8 million in the quarter from $70 million in the year-ago
quarter. Income from operations improved to $85 million from $76
million in the prior-year quarter. However, operating margin
declined 60 basis points year over year to 18.5%.
Financial Position
As of December 31, 2011, cash and cash equivalents of Stericycle
amounted to $30.3 million compared with $22.5 million as of
December 31, 2011. The debt-to-capitalization ratio improved to 51%
as of March 31, 2012 from 54% as of December 31, 2011. Cash from
operations was $99.6 million in the quarter versus $65.6 million in
the year-ago quarter.
Stericycle repurchased over 38,000 shares of common stock for
$2.9 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 11 acquisitions, out
of which 6 were based in domestic locations and the rest in
international locations.
Outlook
Management provided EPS guidance in the range of $3.24 to $3.28
for full year 2012 and expects revenues in the range of $1.85
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 witnessed 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. For its small
quantity customers, the services include Steri-Safe and clinical
compliance offerings and for large quantity customers - Sharps
Management, pharma waste and Integrated Waste Services.
With currently 80% of the large quantity and 70% of the small
quantity customers using one of Stericycle's current service
offerings, the adoption of its multiple services could more than
double or triple its revenues.
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 conducting business, and ultimately
increase costs and compress margins. Currently, shares of
Stericycle retain a Zacks #4 Rank (short-term "Sell" rating).
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. It competes with
US Ecology Inc.
(
ECOL
) and
Waste Management
(
WM
).
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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