Waste management firm Stericycle, Inc.SRCL is scheduled to report third-quarter 2016 results after the closing bell on Oct 27. In the last reported quarter, adjusted earnings were in line with the Zacks Consensus Estimate of $1.18. The company has a dismal earnings surprise history with a trailing four-quarter average negative earnings surprise of 2.29%.
Let's see how things are shaping up for this announcement.
Key Factors in the Third Quarter
Currently,the overall hazardous waste market remains challenging for Stericycle. This has led to increased competition for available volume. Such market conditions have reduced the revenue and profitability of the company's manufacturing and industrial waste business. The company is also witnessing increased pricing pressure from its SQ (small quantity) customer base. This is a result of the consolidation of physician practices by hospitals and the overall healthcare cost pressures resulting from managed care.
High operating costs continue to be a headwind for Stericycle. In addition, a challenging macroeconomic environment and volatility in foreign exchange are affecting margins and the bottom line.
Moreover, Stericycle's dependence on acquisitions to fuel growth and improve revenues has its flip side. Most of the acquired companies have lower gross margins and higher selling, general and administrative expenses. Acquisitions may also lead to higher overheads and integration-related expenses, which may result in lower profits in the quarter.
In addition, Stericycle operates in a highly competitive market. The barriers to entry into the regulated waste collection and disposal business and the pharmaceutical returns business are very low. Competitors also resort to aggressive pricing to gain market share. This erodes the profitability of the company and will likely lead to lower earnings in the to-be-reported quarter.
However, to combat such pressure, the company has worked on making incremental SG&A investments to drive new customer growth. With respect to its international business, the company has negotiated a plan for SQ patient transfer contracts in the U.K. later this year. In the impending quarter, the company will incur costs relating to transition out of these contracts. It expects its full year 2016 EPS to be in the range of $4.68 to $4.75.
Subsequent to the quarter, Stericycle completed the acquisition of Shred-it International. The acquisition will strengthen Stericycle's growth opportunities by providing additional business-to-business compliance solutions, leveraging its existing core capabilities, and expanding its foothold worldwide.
STERICYCLE INC Price and EPS Surprise
Our proven model does not conclusively show that Stericycle is likely to beat earnings this quarter as it lacks a key component. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:
Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently at +1.71%.
Zacks Rank: Stericycle has a Zacks Rank #5 (Strong Sell).
As it is, we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.
Please check our Earnings ESP Filter that enables you find stocks that are expected to come out with earnings surprises.
Stocks to Consider
Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat this quarter:
Amazon.com, Inc. AMZN , with an Earnings ESP of +10.47% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .
Navigant Consulting Inc. NCI , with an Earnings ESP of +6.90% and a Zacks Rank #3.
ABB Ltd. ABB , with an Earnings ESP of +17.86 and a Zacks Rank #3.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>