Stericycle Beats EPS, Meets Revenue

Stericycle Inc. (SRCL - Analyst Report) delivered adjusted earnings per share (EPS) of 81 cents in the second quarter of fiscal 2012, up 17% from 69 cents in the prior-year quarter. Adjusted EPS beat the Zacks Consensus Estimate by a cent.

The quarter noted some special items including acquisition expenses of 2 cents per share, restructuring costs and plant closure expenses of 1 cent per share. The prior-year quarter noted acquisition costs of 5 cents per share and expense of 1 cent per share related to the acceleration of term loan fees. Including these items, EPS amounted to 78 cents in the reported quarter compared with 63 cents in the year-ago quarter.

Total revenue increased 14% year over year to $469 million in the first quarter, at par with the Zacks Consensus Estimate. Acquisitions contributed $36.6 million to revenues while foreign exchange had a negative impact of $8.1 million.

Domestic revenues were $337.9 million; return and recall revenues amounted to $29 million; and international revenues totaled $131.1 million. The domestic internal growth rate was up 9%, with small quantity climbing up 10% and large quantity another 8%.

Cost and Margins

Cost of sales increased to $249 million in the quarter from $214 million in the year-ago quarter. Gross profit increased to $209.5 million from $186.7 million in the year-earlier quarter. However, gross margin contracted 80 basis points year over year to 44.7%.

Selling, general and administrative expenses increased 12% to $80.6 million in the quarter from $72.3 million in the year-ago quarter. Income from operations improved to $121 million from $109 million in the prior-year quarter. However, operating margin declined 60 basis points year over year to 25.9%.

Financial Position

As of June 30, 2012, cash and cash equivalents of Stericycle amounted to $54.2 million compared with $30.3 million as of March 31, 2012. The debt-to-capitalization ratio improved nominally to 50% as of June 30, 2012 from 51% as of March 31, 2012. Cash from operations was $188.8 million in the first half of fiscal 2012 versus $119.7 million in the comparable period last year.

Stericycle repurchased over 38,000 shares of common stock for $2.9 million in the quarter, under its authorization program. The company has authorization to purchase an additional 4.3 million shares.

During the quarter, the company completed eight acquisitions, out of which three were based in domestic locations and the rest in international locations.

Outlook

Management provided EPS guidance in the range of $3.26 to $3.29 for full year 2012 and expects revenues in the range of $1.856 billion to $1.9 billion for the year.

Free cash flow is expected to range between $322 million and $32530 million in 2012, with capital expenditure anticipated between $63 million and $65 million.

Our Take

The company is witnessing strong growth worldwide, driven by new account acquisition and expansion of its portfolio of service offerings. Stericycle offers multiple service offerings to its customers, which add to the value of each account. For its small quantity customers, the services include Steri-Safe and clinical compliance offerings and for large quantity customers - Sharps Management, pharma waste and Integrated Waste Services.

With currently 80% of the large quantity and 70% of the small quantity customers using one of Stericycle’s current service offerings, the adoption of its multiple services could more than double or even triple its revenues. Currently, shares of Stericycle retain a Zacks #2 Rank (short-term “Buy” rating).

Based in Lake Forest, Illinois, Stericycle Inc. is a leading provider of regulated medical waste management and product recall and return services in the U.S. It operates a national medical waste management network that caters to medical schools, hospitals, and other healthcare providers. It competes with US Ecology Inc. (ECOL - Snapshot Report) and Waste Management (WM - Analyst Report).