US Ecology (NASDAQ: ECOL) reported its fourth-quarter and full-year 2016 results after the market closed on Thursday. Continued sluggishness in the industrial sector resulted in weaker-than-expected results for the environmental services company.
Shares of US Ecology have returned 72% in the one-year period through Feb. 16, versus nearly 29% for the S&P 500 . The stock got a sizable post-Election Day boost on the belief among some investors that Trump's presidency will result in a pickup in industrial activity. The stock has also outperformed the broader market over the recent five- and 10-year periods.
US Ecology's key quarterly numbers
|Metric||Q4 2016||Q4 2015||Year-Over-Year Change|
|Revenue||$117.2 million||$138.3 million||(15.3%)|
|Revenue excluding Allstate Power Vac*||$117.2 million||$130.2 million||(9.9%)|
|Adjusted EBITDA||$27.3 million||$33.0 million||(17.3%)|
|Pro forma adjusted EBITDA (excludes Allstate)||$27.4 million||$32.6 million||(16%)|
|Net income||$7.7 million||$7.7 millon||--|
|Adjusted net income||$8.0 million||$7.8 million||2.6%|
|GAAP earnings per share||$0.35||$0.35||--|
Data source: US Ecology. EBITDA = earnings before interest, taxes, depreciation, and amortization. GAAP = generally accepted accounting principles. *Allstate Power Vac was sold on Nov. 1, 2015.
For full-year 2016, revenue declined 15.2% to $477.7 million. Excluding Allstate, which contributed revenue of $59.1 million in 2015, 2016 revenue tumbled 5.2% year over year. EPS rose 33.1% to $1.57, and adjusted EPS slumped 2.5% to $1.53. This result fell short of U.S. Ecology's adjusted EPS guidance of $1.54 to $1.65 issued last quarter.
For context, analysts were looking for quarterly adjusted earnings of $0.43 per share on revenue of $119.67 million. So US Ecology fell short on both counts.
Key base business: 4% year-over-year revenue decline
Revenue in US Ecology's key base business, which is part of its environmental services business, declined 4% from the year-ago period. (The base business doesn't include the "event business," or nonrecurring projects of 1,000 tons or more.) Results in the environmental services business were weaker than the company anticipated.
Base business year-over-year revenue results for the previous few quarters are as follows: up 4% in the third quarter of 2016, flat in the second quarter of 2016, up 7% in the first quarter of 2016, and up 3% in the fourth quarter of 2015.
US Ecology's environmental services segment continues to face challenges due largely to project completions in the year-ago period that were not fully replaced and continued project delays in its events business, where revenue dropped 17% year over year. Segment revenue was $85.7 million in the quarter, down 7.6% from $92.7 million in the fourth quarter of 2015. This decrease consisted of a 4% decline in treatment and disposal revenue and a 24% decline in transportation revenue. Gross profit was $32.1 million, an 11.6% decline from $36.3 million in the year-ago period.
The field and industrial services segment also had a tough quarter, driven by the expiration of a contract that was not renewed and softer overall market conditions. The segment generated $31.5 million in revenue, down 30.8% from $45.5 million in the year-ago period. Excluding Allstate, which contributed $8.1 million of revenue in the year-ago period, revenue declined 15.8%. Gross profit was $4.0 million, down from $7.8 million in the fourth quarter of 2015. Excluding Allstate, which contributed $1.6 million of gross profit in the year-ago period, gross profit fell 35.5%. This drop was partly attributable to the reduced revenue.
What management had to say
CEO Jeff Feeler commented in the press release on the weakness in the industrial sector, including lower spending and continued project delays, saying:
Winter weather conditions, which affected shipping and production schedules, combined with lower December industrial waste volumes contributed to a 4% decline in Base Business in our Environmental Services segment in the fourth quarter compared to the fourth quarter of 2015. Our Environmental Services segment Event Business was down 17% during the quarter as compared to the same quarter last year due to prior year project completions that were not fully replaced and continued project delays. Our Field and Industrial Services segment also delivered lower than anticipated results on the softer market conditions as we closed out the year.
US Ecology issued full-year 2017 guidance as follows:
Expected Year-Over-Year Change
$120 million to $130 million
5.8% to 14.6%*
$1.69 to $1.93
10.5% to 26.1%
Data source: U.S. Ecology. *Over 2016 adjusted pro forma EBITDA.
Feeler said in the press release that the company has seen a recent uptick in the industrial sector so far in the first quarter of 2017, which, "while not yet resulting in improved volumes, bodes well for [US Ecology's] 2017 business outlook given the tendency of the hazardous waste industry tends to lag industrial cycles."
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