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Stericycle (SRCL) Up 7.5% Since Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Stericycle, Inc. (SRCL - Free Report) . Shares have added about 7.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SRCL due for a pullback? Before we dive into how investors and analysts have reacted as 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 Q1 Earnings, Ups '18 Revenue View

Stericycle reported better-than-expected first-quarter 2018 results.

Adjusted earnings of $1.21 per share surpassed the Zacks Consensus Estimate by 17 cents and increased 11% on year-over-year basis. Earnings benefited from strong business performance and U.S. tax reform.

Revenues of $895 beat the consensus mark by $10 million and increased 0.3% year over year. The growth can be attributed to continued strength across Secure Information Destruction and Retail Hazardous Waste and Hospital Compliance Services.

In the quarter, Stericycle closed nine tuck-in acquisitions (all in the domestic market, with eight in Secure Information Destruction and one in Regulated Medical Waste). The deals together contributed about $0.7 million to corporate revenues.

The company is making progress with its Business Transformation initiatives, which it began to execute during the fourth quarter of 2017. The five key initiatives include portfolio rationalization, operational optimization, organizational excellence and efficiency, commercial excellence and strategic sourcing.

The business transformation led to financial savings from organizational restructuring, operational optimization projects and strategic sourcing initiatives; placement of a dedicated internal ERP implementation team and third-party system integrator; development of strategic blueprint for target operating model and initiation of detailed design phase of the enabling technology in the first quarter. In the quarter, Stericycle achieved $8 million in recurring adjusted EBITDA transformation savings.

Revenues in Detail

Revenues decreased 1% year over year on a constant currency basis. Organic revenues for the quarter declined 0.6%. Acquisitions contributed $7.1 million to quarterly revenues while divestitures reduced the same by $10.8 million.

By geography, revenues from the United States and Canada were $714.7 million, up 0.5% year over year while International revenues decreased 0.7% year over year to $180.3 million.

By service, Regulated Waste and Compliance Services revenues declined 2.7% to $497.4 million on a year-over-year basis. Secure Information Destruction Services revenues increased 7.7% to $219.9 million. Communication and Related Services revenues decreased to $91.9 million from $93.5 million in the year-ago quarter. Manufacturing and Industrial Services revenues were up 2.6% to $90.7 million.

Profitability Performance

Adjusted gross profit in the reported quarter was $358.5 million, down 2.8% year over year. Adjusted gross profit margin was 40.1%, down from 41.3% in the prior-year quarter.

Adjusted EBITDA was $189.3 million, down 5.1% year over year. Adjusted EBITDA margin was 21.2%, down from 22.4% in the prior-year quarter.

Adjusted selling, general and administrative expenses (SG&A) of $200 million increased 0.9% year over year. As a percentage of sales, SG&A was 22.3%, up from 22.2% in the year-ago quarter.

Financial Position

As of Mar 31, 2018, cash and cash equivalents were $49.4 million while long-term debt (net of current portion) was $2.59 billion compared with the respective tallies of $42.2 million and $2.62 billion in the prior-quarter period. Net cash from operating activities was $110.4 million. Capital expenditure was $28.5 million.

The debt-to-EBITDA ratio was 3.25 at quarter end. Stericycle had an unused borrowing capacity of $635 million under its revolving credit facility. During the quarter, the company repurchased 151,900 mandatory preferred convertible shares for $7.4 million. At the end of the quarter, Stericycle had authorization to purchase additional 2.5 million shares. Dividends paid on mandatory convertible preferred stock was $8.8 million.

Guidance

For 2018, Stericycle raised its revenue guidance. Revenues are now expected to be in the range of $3.50 to $3.64 billion compared with the previously guided range of $3.48-$3.63 billion.

The company continues to expect adjusted earnings in the range of $4.45-$4.85 per share and free cash flow in the range of $330-$400 million. Capital expenditure is projected to be in the range of $160-$180 million.

How Have Estimates Been Moving Since Then?

In the past 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, SRCL has an average Growth Score of C, however its Momentum is doing a bit better with a B. Following the exact same course, the stock was also 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 B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is equally suitable for value and momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, SRCL has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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