US Ecology Beats, Ups Guidance

US Ecology, Inc. ( ECOL - Snapshot Report ) reported earnings per share (EPS) of 39 cents (excluding special items) in its fiscal first quarter, up 56% year over year and way ahead of the Zacks Consensus Estimate of 20 cents.

Including non-cash loss on foreign currency translation and business development costs, EPS in the reported quarter came in at 35 cents. Including non-cash foreign currency translation gain and business development costs, EPS in the prior-year quarter stood at 26 cents.

Quarter in Detail

Revenues inched up 1% to $40 million in the quarter and outpaced outpacing the Zacks Consensus Estimate of $36 million. Treatment and disposal revenue posted a growth of 13%, on the back of a 16% increase in Base Business (recurring waste streams).

Transportation revenue declined 48% as lesser number of customers utilized the company's transportation and logistics services for clean-up projects. Event business (discrete projects) revenue remained flat on a year-over-year basis.

Total volume disposed or processed during the quarter at US Ecology’s Idaho, Michigan, Nevada, Texas and Quebec waste facilities was 261,000 tons, up 21% from the year-ago quarter. A relatively higher volume of direct disposal material and other changes in service mix led to a 6% decline in average selling price for the reported quarter.

Direct operating costs increased 2% to $18.6 million while transportation costs decreased 51% to $4 million in the quarter. Gross profit improved 32% to $17.3 million with gross margin at 43% compared with 33% in the prior-year quarter. Treatment and disposal gross margin improved to 48% from 43% a year ago due to higher volumes, favorable service mix and flat direct costs.

Selling, general and administrative expenses increased 20% year over over to $6.4 million. The company’s operating profit improved 41% to a record $11 million from the year-ago quarter.

Operating margin expanded 780 basis points to 27.4% from 19.6% in the year-ago quarter. Adjusted EBITDA (earnings before Interest, tax, depreciation and amortization) was another record at $15.4 million, up 30% from the prior-year quarter.

Financials

Cash and cash equivalents were $5.9 million as of June 30, 2012, down from $6.4 million as of March 31, 2012. During the first half of fiscal 2012, cash flow from operations increased to $15.6 million from $15.2 million in the comparable year-ago period.

Total borrowings on line of credit were $50 million as of June 30, 2012 compared with $35 million as of March 31, 2012, reflecting the purchase of Dynecol on May 31, 2012. As of June 30, 2012, $27.1 million remains available for future borrowings.

In May, US Ecology completed the acquisition of Dynecol, Inc for $11.3 million. Dynecol is a permitted treatment, storage and disposal facility located in Detroit, Michigan that provides hazardous and non-hazardous waste treatment, transportation and waste brokering services to the regional U.S. and Canadian industrial markets.

During June, the one month of US Ecology’s ownership of the facility, it has processed more than 12,000 tons of waste, contributing more than $1 million in revenue and also contributed to operating profit.

Outlook

US Ecology expects 2012 EPS between $1.05 and $1.15, up from the previous expectation of 92 cents to $1.02, reflecting upbeat second quarter results and expectations of a stronger second half. Adjusted EBITDA is now expected to lie between $48 and $52 million, up from $46 and $49 million.

Boise, Idaho-based US Ecology through its subsidiaries, provides radioactive, hazardous, and non-hazardous industrial waste management and recycling services to commercial and government entities, which include refineries and chemical production facilities, manufacturers, electric utilities, steel mills, medical and academic institutions and waste brokers.

It competes with Clean Harbors, Inc. ( CLH - Snapshot Report ) , Valhi, Inc. ( VHI ) and Waste Management Inc ( WM - Analyst Report ) . US Ecology currently maintains a Zacks #3 Rank (Hold) on its stock for the short term.