Technology

Stericycle (SRCL) Up 22.1% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Stericycle (SRCL). Shares have added about 22.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stericycle due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Stericycle Beats Q4 Earnings & Revenues Estimates

Stericycle reported better-than-expected fourth quarter 2018 results.

Adjusted earnings of $1.03 per share beat the Zacks Consensus Estimate by 8 cents and increased 3% year over year. The uptick was driven by lower tax rate, offset by higher interest rates.

Total revenues came in at $852.7 million, which beat the consensus mark by roughly $4 million but declined 4% year over year on a reported and 1.1% on an organic basis. While acquisitions contributed $6.8 million to the top line, effects of foreign exchange and divestitures reduced revenues by $ 21.4 million and $10.4 million, respectively.

Weakness in quantity medical waste business and Communication and Related Services (CRS), unfavorable foreign exchange and divestitures led to the organic revenue decline. This was partially offset by growth in Secure Information Destruction and other core service offerings.

Stericycle is making progress with Business Transformation initiatives, aimed at improving long-term operational and financial performance. In 2018, the company realized adjusted EBITDA of $64 million from these initiatives. Stericycle is currently in the build phase of the ERP system that will continue through the first half of 2019.

Portfolio rationalization, as part of Business Transformation, is also in progress with Stericycle pursuing strategic alternatives for the CRS business and other non-core assets and geographies. Concurrent with the earnings release, the company announced closure of the divesture of the U.K.-based texting business, which had been part of CRS.

Revenues by Service

Regulated Waste and Compliance Services revenues declined 4.6% year over year on a reported basis and 1.7% organically to $474.8 million. Secure Information Destruction Services revenues increased 15.4% year over year on a reported basis and 13.8% organically to $233.5 million.

Communication and Related Services revenues fell 29.7% year over year on a reported basis and 29.1% organically to $68.3 million. Manufacturing and Industrial Services revenues fell 16.1% year over year on a reported basis and 1.5% organically to $76.1 million.

Revenues by Geography

Revenues in the Domestic and Canada segment totaled $700.6 million, down 2.2% year over year on a reported basis and 2.6% organically. The region contributed 82% to total revenues.

International revenues fell 11.2% year over year to $152.1 million. It improved 5.1% organically. The region contributed 18% to total revenues. 

Profitability Performance

Adjusted gross profit in the reported quarter amounted to $346.6 million, up slightly year over year. Adjusted gross profit margin was 40.6%, up from 38.9% in the prior-year quarter.

Adjusted EBITDA was $180.5 million, down 6.9% year over year. Adjusted EBITDA margin was 21.2%, down from 21.8% in the prior-year quarter.

Adjusted operating income was $150.5 million, down slightly year over year. Adjusted operating income margin was 17.6%, up from 17.1% in the prior-year quarter.

Adjusted selling, general and administrative expenses (SG&A) of $196.1 million inched up 1.3% year over year. As a percentage of sales, SG&A was 23%, up from 21.8% in the year-ago quarter.

Balance Sheet & Cash Flow

Stericycle exited the fourth quarter with cash and cash equivalents of $34.3 million compared with $52 million at the end of the prior quarter. Long-term debt was $2.7 billion, roughly flat with the prior-quarter’s tally.

The company generated $75.8 million of cash from operating activities and spent $33.9 million on Capex in the quarter.

2019 Guidance

Management expects revenues in the range of $3.408-$3.533 billion and EPS in the range of $3.32 to $3.72. Adjusted EBITDA margin is projected between 19.4% and 20.1%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -12.33% due to these changes.

VGM Scores

Currently, Stericycle has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Stericycle has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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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 Nasdaq, Inc.

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