A month has gone by since the last earnings report for Clean Harbors (CLH - Free Report) . Shares have lost about 0.6% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Clean Harbors due for a breakout? 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.
Clean Harbors Tops Q3 Earnings Estimates, Updates View
Clean Harbors reported mixed third-quarter 2018 results wherein the company’s earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings per share of 59 cents beat the consensus mark by 18 cents and came ahead of the year-ago figure by 38 cents. Total revenues of $843.2 million however lagged the consensus estimate by $8.4 million but increased 11.6% year over year on Veolia acquisition, pricing initiatives and solid growth across each of its reporting segments.
Revenues by Segment
Environmental Services revenues increased 14.9% year over year to $542.98 million. The growth was driven by Veolia acquisition, higher-value waste streams in the company’s disposal network, pricing improvements and strength in the industrial, energy and field services businesses. Notably, Veolia assets accounted for almost two-thirds of the segmental revenue growth in the reported quarter. The segment benefited from robust growth within regional structure, particularly in the Gulf and Midwest regions. The segment accounted for 64% of total revenues.
Safety-Kleen revenues increased 6.2% year over year to $333.90 million, marking its ninth consecutive quarter of revenue growth. The segment benefited from higher base oil and blended pricing, which was aided by growth in the company’s core service offerings at the branches, including direct lube sales. In terms of sales mix, direct lube sales accounted for 6% of Safety-Kleen's total volume sold in the third quarter. The segment contributed 36% to total revenues.
Adjusted EBITDA increased 14.9% year over year to $141.27 million on the back of higher-margin waste streams, improved pricing and strength across multiple businesses. Adjusted EBITDA margin increased 50 basis points (bps) year over year to 16.8%.
Segment-wise, Environmental Services’ adjusted EBITDA was $102.42 million, up 18.4% year over year. Safety-Kleen’s adjusted EBITDA of $79.5 million showed an improvement of 13.1% year over year due to higher pricing, effective spread management and the closed loop offering.
Balance Sheet & Cash Flow
Clean Harbors exited third-quarter 2018 with cash and cash equivalents of $215.49 million compared with $197.06 million at the end of the prior quarter. Inventories and supplies were $196.04 million, up from $193.54 million in the prior quarter. Long-term debt of $1.62 billion was flat sequentially.
The company generated $117.54 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $64.43 million. CapEx (net of disposals) was $53.1 million.
The company repurchased nearly 104,000 shares for a total cost of $7.1 million in the reported quarter.
Clean Harbors updated its 2018 guidance. The company now expects adjusted EBITDA in the range of $470-$490 million compared with the previously guided range of $460-$490 million. Segment-wise, adjusted EBITDA for Environmental Services segment is anticipated to increase 13% or more in 2018. Veolia's U.S. Industrial business is expected to add $10-$13 million in adjusted EBITDA. Safety-Kleen’s adjusted EBITDA is expected to register 13-14% growth in 2018.
Adjusted free cash flow is now expected in the range of $140-$160 million compared with the previously guided range of $135-$165 million.
Net cash from operating activities is projected between $310 million and $350 million. The previously guided range was $305-$355 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -10.45% due to these changes.
Currently, Clean Harbors has a strong Growth Score of A, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Clean Harbors has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.