Stericycle, Inc. SRCL reported mixed second-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings of $1.17 per share surpassed the Zacks Consensus Estimate by 4 cents and came ahead of the year-ago figure by 2 cents. The bottom line benefited from the favorable impact of a lower tax rate. Notably, Stericyle enjoyed a lower effective tax rate of 25.7% compared with 37.1% in the year-ago quarter on an adjusted basis.
Total revenues of $883.3 million missed the consensus mark by $12.8 million and decreased 3.8% year over year was due to the decline in the small quantity medical waste business combined with softness in Communication and Related Services ("CRS") and divestitures. This was partially offset by growth in Secure Information Destruction and other core service offerings.
While acquisitions and foreign exchange contributed $8.1 million and $0.4 million, respectively, to top-line growth, divestitures reduced revenues by $13.4 million. Organically, the top line declined $29.5 million.
Notably, shares of Stericycle declined around 9.8% in after-hours trading in response to the company's weaker-than-expected second-quarter sales as well as lowered annual guidance. So far this year, shares of Stericycle have gained 4.4% compared with the 5.2% rise of the industry it belongs to.
In the reported quarter, Stericycle closed six tuck-in acquisitions. All six were U.S. Secure Information Destruction businesses. These acquisitions contributed almost $0.8 million revenues in the quarter with projected annualized revenues of $7.2 million. The company also completed the divestiture of a hazardous waste business in the United Kingdom. This divestiture reduced revenues in the quarter by $2.6 million with a projected impact of $18 million in 2018.
The company is making progress with its Business Transformation initiatives, which it began to execute during the fourth quarter of 2017. The five key initiatives include portfolio rationalization, operational optimization, organizational excellence and efficiency, commercial excellence and strategic sourcing. In the second quarter, Stericycle achieved additional $7.9 million in adjusted EBITDA transformation savings. As part of the business transformation, the company completed several operational improvements and strategic sourcing initiatives in the quarter.
Let's check out the numbers in detail.
Revenues by Service
Regulated Waste and Compliance Services revenues declined 5.5% year over year on a reported basis and 4% organically to $483.8 million. The region accounted for 55% of total revenues.
Secure Information Destruction Services revenues increased 8.3% year over year on a reported basis and 4.8% organically to $230 million. The region contributed 26% to total revenues.
Communication and Related Services revenues decreased 21% year over year on a reported basis and 21.7% organically to $81.3 million. The region accounted for 9% of total revenues.
Manufacturing and Industrial Services revenues decreased 2.2% year over year to $88.2 million. It improved 3.8% organically. The region contributed 10% to total revenues.
Stericycle, Inc. Revenue (TTM)
Stericycle, Inc. Revenue (TTM) | Stericycle, Inc. Quote
Revenues by Geography
Revenues from the United States and Canada were $711.7 million, down 3.5% year over year on a reported basis and 4.7% organically. The region accounted for 81% of total revenues.
International revenues decreased 4.7% year over year to $171.6 million. It improved 2.9% organically. The region contributed 19% to total revenues.
Adjusted gross profit in the reported quarter was $353.3 million, down 7.4% year over year. Adjusted gross profit margin was 40%, down from 41.6% in the prior-year quarter.
Adjusted EBITDA was $190.9 million, down 10.1% year over year. Adjusted EBITDA margin was 21.6%, down from 23.1% in the prior-year quarter.
Adjusted operating income was $158.2 million, down 13.6% year over year. Adjusted operating income margin was 17.9%, down from 20% in the prior-year quarter.
Adjusted selling, general and administrative expenses (SG&A) of $195.1 million decreased 1.8% year over year. As a percentage of sales, SG&A was 22.1%, up from 21.6% in the year-ago quarter.
Balance Sheet & Cash Flow
Stericycle exited the second quarter with cash and cash equivalents of $45 million compared with $49.4 million at the end of the prior quarter. Long-term debt (net of current portion) was $2.54 billion compared with $2.59 billion at the end of the prior quarter.
The company generated $231 million of cash from operating activities in the reported quarter. Capital expenditures were $35.5 million and $13.1 million were spent in acquisitions.
In the reported quarter, Stericycle paid $8.3 million in dividends and repurchased shares worth $9.2 million.
For 2018, Stericycle lowered its guidance. Revenues are now expected to be in the range of $3.45 to $3.54 billion compared with the previously guided range of $3.50-$3.64 billion. The Zacks Consensus Estimate of $3.57 billion exceeds the higher end of the currently guided range by 3 cents.
Adjusted earnings are expected in the range of $4.35-$4.45 per share compared with the previously guided range of $4.45-$4.85. The Zacks Consensus Estimate of $4.63 is well above the higher end of the currently guided range by 18 cents.
Free cash flow guidance has been reduced to the range of $15-$70 million from the previous guidance of $330-$400 million. Capital expenditure is projected to be in the range of $155-$170 million compared with the previously guided range of $160-$180 million.
Adjusted EBITDA is projected to be in the range of $750-$775 million compared with the previously guided range of $760-$810 million.
The company expects to generate $185-$225 million of cashfrom operating activities for the full year. The previous expectation was $510-$560 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 Business Services sector are keenly awaiting second-quarter earnings reports from key players like Avis Budget CAR , Genpact G and Delphi Technologies DLPH . While Avis Budget and Genpact will report their quarterly numbers on Aug 7, Delphi Technologies will release results on Aug 8.
Will You Make a Fortune on the Shift to Electric Cars?
Here's another stock idea to consider. Much like petroleum 150 years ago, lithium power may soon shake the world, creating millionaires and reshaping geo-politics. Soon electric vehicles (EVs) may be cheaper than gas guzzlers. Some are already reaching 265 miles on a single charge.
With battery prices plummeting and charging stations set to multiply, one company stands out as the #1 stock to buy according to Zacks research.
It's not the one you think.
See This Ticker Free >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Avis Budget Group, Inc. (CAR): Free Stock Analysis Report Delphi Technologies PLC (DLPH): Free Stock Analysis Report Genpact Limited (G): Free Stock Analysis Report Stericycle, Inc. (SRCL): Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research