Waste management firm Stericycle, Inc. (SRCL - Free Report) reported solid second-quarter 2017 results with a healthy improvement in revenues on a year-over-year basis. GAAP loss for the quarter was $148.8 million or loss of $1.74 per share as against net income of $37.3 million or 43 cents per share in the year-ago quarter. The year-over-year decline in GAAP earnings, despite top-line growth, was primarily attributable to a class action lawsuit settlement for which the company recorded a charge of $295.0 million.
Adjusted earnings for the reported quarter were $1.15 per share compared with $1.18 in the year-earlier quarter. Although adjusted earnings decreased year over year, it beat the Zacks Consensus Estimate by 2 cents.
Revenues & Margins
Second-quarter revenues were $917.7 million, up 26.1% year over year and exceeded the Zacks Consensus Estimate of $902 million. Organic revenues for the quarter improved 3.4% while acquisitions contributed $8.6 million to incremental revenues and divestures reduced the same by $0.8 million.
Domestic revenues in the reported quarter were $737.7 million, up 40.9% year over year while International revenues decreased 14.8% to $180.1 million. Regulated Waste and Compliance Services revenues declined to $512.3 million from $523.3 million. Secure Information Destruction Services revenues increased $21.9 million to $212.4 million, primarily due to higher recycling revenues. Communication and Related Services revenues increased to $102.9 million from $82.5 million as market-leading position and unique capabilities enabled the company to serve new brands across several industries. Manufacturing and Industrial Services revenues declined $5.1 million to $90.1 million.
Gross profit (GAAP) in the reported quarter was $381.8 million, up 1.1% year over year. Gross margin was 41.6%, down from 42.4% in the prior-year quarter.
During the reported quarter, Stericycle closed six tuck-in acquisitions (including four in the domestic market and two in the international market). The deals together contributed about $0.2 million to corporate revenues in the quarter. The worldwide acquisition pool of the company remains robust with well over $100 million in annualized revenues in multiple geographies across business lines.
As of Jun 30, 2017, cash and cash equivalents were $44.2 million while long-term debt (net of current portion) was $2,749.8 million.
Net cash from operating activities for the first six months of the year was $237.1 million compared with $245.4 million in the year-ago period. The debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio was 3.46x at the quarter end. Stericycle had an unused borrowing capacity of $676 million under its revolving credit facility. Capital expenditure for the quarter was $30 million. During the quarter, the company repurchased 175,500 mandatory preferred convertible shares for $12.6 million.
For 2017, Stericycle updated its guidance in accordance with the current market scenario. Earnings are currently expected in the range of $4.55–$4.69 per share, compared with $4.55–$4.75 expected earlier. The company expects revenues to be in the range of $3.52–$3.65 billion ($3.53–$3.66 billion was projected earlier), and free cash flow in the range of $450–$470 million (unchanged). Capital expenditure is projected to be in the range of $125–$150 million (unchanged).
Zacks Rank & Key Picks
Stericycle currently has a Zacks Rank #2 (Buy). Other stocks in the broader industry worth considering include ABM Industries Incorporated (ABM - Free Report) , Gartner, Inc. (IT - Free Report) and NV5 Global, Inc. (NVEE - Free Report) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ABM pulled off a positive earnings surprise of 16.9% in the trailing four quarters, beating estimates thrice.
Gartner has a long-term earnings growth expectation of 17.3%. It has a positive earnings history, beating estimates thrice in the trailing four quarters with an average earnings surprise of 4.6%.
NV5 Global has a long-term earnings growth expectation of 20%. It delivered a positive earnings surprise of 1.8% in the trailing four quarters.
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