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Stericycle (SRCL) Down 13.3% Since Earnings Report: Can It Rebound?

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About a month has gone by since the last earnings report for Stericycle, Inc. (SRCL - Free Report) . Shares have lost about 13.3% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Stericycle Beats on Q2 Earnings, Updates Guidance

Stericycle 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 $0.43 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 $0.02.

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.

Acquisitions

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.

Financial Position

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.

Revised Guidance

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).

How Have Estimates Been Moving Since Then?

Following the release and in the last month, investors have witnessed a downward trend in fresh estimates. There have been eight revisions lower for the current quarter.

Stericycle, Inc. Price and Consensus

VGM Scores

At this time, Stericycle's stock has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value investors based on our style scores.

Outlook

Estimates have been broadly trending downward for the stock. The magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We expect in-line returns from the stock in the next few months.




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