Stericycle, Inc. SRCL reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings of $1.03 per share surpassed the Zacks Consensus Estimate by 2 cents but decreased 6.4% year over year. The downturn can be mainly attributed to reduced profitability in Communication and Related Services.
Stericycle, Inc. EPS Diluted (TTM)
Stericycle, Inc. EPS Diluted (TTM) | Stericycle, Inc. Quote
Total revenues came in at $854.9 million, which missed the consensus mark by roughly $4 million and decreased 3.2% year over year on a reported and 0.9% on an organic basis. The small quantity medical waste business combined with continued softness in Communication and Related Services, unfavorable foreign exchange and divestitures led to the downside. This was partially offset by growth in Secure Information Destruction and other core service offerings.
While acquisitions contributed $7.7 million to top-line growth, the effect of foreign exchange rate and divestitures reduced revenues by $17.3 million and $10.4 million, respectively. In the reported quarter, Stericycle completed four tuck-in acquisitions all in the United States. These buyouts contributed roughly $0.4 million revenues, with projected annualized revenues of $4.8 million.
Stericycle is making progress with its Business Transformation initiatives aimed at improving long-term operational and financial performance. Year to date, the company realized adjusted EBITDA of $39.8 million from these initiatives. In the third quarter, Stericycle completed detailed design phase of the planned enterprise resource planning system (ERP) and entered in to the build phase. The ERP system is on budget and on track for implementation in the United States and Canada in 2020 and internationally in 2021.
Portfolio rationalization, as part of Business Transformation, is also in progress with Stericycle divesting the non-core U.S. Clean Room service in the quarter. This divestiture reduced revenues in the third quarter by $1.5 million, with a projected impact of $9 million. The company is exploring strategic alternatives for C&RS, and evaluating other non-core service lines and geographies.
Following the company's weaker-than-expected sales in the third quarter and lowered annual guidance, shares of Stericycle declined around 5.5% in after-hours trading. So far this year, the stock has lost 29.9% against the industry 's 1.2% growth.
Let's check out the numbers in detail.
Revenues by Service
Regulated Waste and Compliance Services revenues declined 5.2% year over year on a reported basis and 3% organically to $476.6 million. The region accounted for 56% of total revenues. Secure Information Destruction Services revenues increased 11.2% year over year on a reported basis and 9.1% organically to $227.6 million. The region contributed 27% to total revenues.
Communication and Related Services revenues decreased 19.6% year over year on a reported basis and 19.3% organically to $71.6 million. The region accounted for 8% of total revenues. Manufacturing and Industrial Services revenues decreased 8.7% year over year to $79.1million. It improved 6.8% organically. The region contributed 9% to total revenues.
Revenues by Geography
Revenues from the Domestic and Canada totaled $703.8 million, down 0.6% year over year on a reported basis and 1.3% organically. The region accounted for 82% of total revenues. International revenues decreased 13.5% year over year to $151.1 million. It improved 0.8% organically. The region contributed 18% to total revenues.
Adjusted gross profit in the reported quarter summed $343.3 million, down 6.7% year over year. Adjusted gross profit margin was 40.2%, down from 41.7% in the prior-year quarter.
Adjusted EBITDA was $183.9 million, down 10.8% year over year. Adjusted EBITDA margin was 21.5%, down from 23.4% in the prior-year quarter.
Adjusted operating income totaled $151.8 million, down 13.7% year over year. Adjusted operating income margin was 17.8%, down from 19.9% in the prior-year quarter.
Adjusted selling, general and administrative expenses (SG&A) of $191.5 million decreased 0.4% year over year. As a percentage of sales, SG&A was 22.4%, up from 21.8% in the year-ago quarter.
Balance Sheet & Cash Flow
Stericycle exited the third quarter with cash and cash equivalents of $52 million compared with $45 million at the end of the prior quarter. Long-term debtwas $2.7 billion compared with $2.5 billion at the end of the previous quarter.
The company generated $141.1 million of cash from operating activities and spent $32.9 million on Capex in the quarter.
For 2018, Stericycle lowered its guidance. Revenues are now expected to be in the range of $3.44-$3.52 billion compared with earlier guidance of $3.45-$3.54 billion. The Zacks Consensus Estimate of $3.50 billion exceeds the midpoint of the updated guidance range.
Adjusted earnings are expected in the band of $4.31-$4.41 per share compared with the previously guided range of $4.35-$4.45. The Zacks Consensus Estimate of $4.43 is above the higher end of this guided range.
Adjusted EBITDA is projected to be between $736 miilion and $756 million compared with the $750 million and $775 million anticipated earlier.
Free cash flow guidance has been reduced to the range of $0-$50 million from the previous guidance of $15-$70 million. Capital expenditures are envisioned to be in the range of $145-$160 million compared with $155-$170 million projected previously.
The company now expects to generate $160-$195 million of cashfrom operating activities for the full year. The previous expectation was $185-$225 million.
Zacks Rank & Upcoming Releases
Stericycle currently carries a Zacks Rank #4 (Sell).
You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .
Investors interested in the broader Business Services sector are keenly awaiting third-quarter earnings reports from key players like Genpact G , Delphi Technologies DLPH and Green Dot GDOT . While Genpact will report on Nov 6, Delphi Technologies and Green Dot will release their quarterly results on Nov 7.
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