Personal Finance

Why Stericycle Inc Stock Is Sinking Today

Close-up of shredded paper

What happened

Shares of Stericycle Inc (NASDAQ: SRCL) are falling today, down 13% as of 11:18 a.m. EDT, after the medical waste disposal and secure information destruction specialist reported lackluster second-quarter results and reduced its full-year forecast.

So what

Stericycle recorded $888.3 million in revenue during the second quarter, which was 3.7% less than it posted in the year-ago period and $14.6 million below the consensus forecast of analysts. Several factors drove the decline, including lower pricing in its small quantity medical waste business, softness in its communications and related services (CRS) segment, and some asset sales, which more than offset the continued growth of its secure document destruction business.

Close-up of shredded paper

Image source: Getty Images.

However, the company did report $106.1 million, or $1.17 per share, of adjusted net income. Both figures were up by a low-single-digit rate versus last year's second quarter. Furthermore, earnings beat analysts' expectations by $0.03 per share. Driving Stericycle's improved profitability was a lower tax rate and the positive impact of its business transformation plan.

While the company anticipates that this strategy will drive growth in the future, it's having an impact on near-term results, which will continue throughout 2018. One factor is that the company is selling non-core assets, including the recently announced sale of its Controlled Environmental Solutions business to Cantel Medical for $17 million in cash. That business generated $8.9 million in revenue for Stericycle last year. However, it will now boost Cantel Medical's earnings, with the company anticipating that it will be immediately accretive to profits this year.

Now what

The sale of that business, as well as other issues, led Stericycle to reduce its full-year forecast:

Metric Updated Guidance Midpoint Change vs. 2017 Prior Guidance Midpoint Change vs. 2017
Revenue $3.45 billion to $3.54 billion (2.4%) $3.5 billion to $3.64 billion (0.3%)
EPS $4.35 to $4.55 2.5% $4.45 to $4.85 7.1%

Data source: Stericycle.

Meanwhile, revenue and earnings could fall further since the company announced that it plans to explore strategic alternatives for its CRS business, which could result in a sale. However, despite these near-term headwinds, Stericycle's business transformation remains on track to drive a 6% to 10% compound annual growth rate in EPS through 2022.

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Matthew DiLallo owns shares of Stericycle. The Motley Fool recommends Stericycle. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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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