A month has gone by since the last earnings report for Stericycle (SRCL - Free Report) . Shares have lost about 5.3% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Stericycle 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 catalysts.
Stericycle Beats on Q3 Earnings, Lowers '18 Guidance
Stericycle reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.
Adjusted earnings of $1.03 per share surpassed the Zacks Consensus Estimate by 2 cents but decreased 6.4% year over year. The downturn can be mainly attributed to reduced profitability in Communication and Related Services.
Total revenues came in at $854.9 million, which missed the consensus mark by roughly $4 million and decreased 3.2% year over year on a reported and 0.9% on an organic basis. The small quantity medical waste business combined with continued softness in Communication and Related Services, unfavorable foreign exchange and divestitures led to the downside. This was partially offset by growth in Secure Information Destruction and other core service offerings.
While acquisitions contributed $7.7 million to top-line growth, the effect of foreign exchange rate and divestitures reduced revenues by $17.3 million and $10.4 million, respectively. In the reported quarter, Stericycle completed four tuck-in acquisitions all in the United States. These buyouts contributed roughly $0.4 million revenues, with projected annualized revenues of $4.8 million.
Stericycle is making progress with its Business Transformation initiatives aimed at improving long-term operational and financial performance. Year to date, the company realized adjusted EBITDA of $39.8 million from these initiatives. In the third quarter, Stericycle completed detailed design phase of the planned enterprise resource planning system (ERP) and entered in to the build phase. The ERP system is on budget and on track for implementation in the United States and Canada in 2020 and internationally in 2021.
Portfolio rationalization, as part of Business Transformation, is also in progress with Stericycle divesting the non-core U.S. Clean Room service in the quarter. This divestiture reduced revenues in the third quarter by $1.5 million, with a projected impact of $9 million. The company is exploring strategic alternatives for C&RS, and evaluating other non-core service lines and geographies.
Revenues by Service
Regulated Waste and Compliance Services revenues declined 5.2% year over year on a reported basis and 3% organically to $476.6 million. The region accounted for 56% of total revenues. Secure Information Destruction Services revenues increased 11.2% year over year on a reported basis and 9.1% organically to $227.6 million. The region contributed 27% to total revenues.
Communication and Related Services revenues decreased 19.6% year over year on a reported basis and 19.3% organically to $71.6 million. The region accounted for 8% of total revenues. Manufacturing and Industrial Services revenues decreased 8.7% year over year to $79.1million. It improved 6.8% organically. The region contributed 9% to total revenues.
Revenues by Geography
Revenues from the Domestic and Canada totalled $703.8 million, down 0.6% year over year on a reported basis and 1.3% organically. The region accounted for 82% of total revenues. International revenues decreased 13.5% year over year to $151.1 million. It improved 0.8% organically. The region contributed 18% to total revenues.
Adjusted gross profit in the reported quarter summed $343.3 million, down 6.7% year over year. Adjusted gross profit margin was 40.2%, down from 41.7% in the prior-year quarter.
Adjusted EBITDA was $183.9 million, down 10.8% year over year. Adjusted EBITDA margin was 21.5%, down from 23.4% in the prior-year quarter.
Adjusted operating income totalled $151.8 million, down 13.7% year over year. Adjusted operating income margin was 17.8%, down from 19.9% in the prior-year quarter.
Adjusted selling, general and administrative expenses (SG&A) of $191.5 million decreased 0.4% year over year. As a percentage of sales, SG&A was 22.4%, up from 21.8% in the year-ago quarter.
Balance Sheet & Cash Flow
Stericycle exited the third quarter with cash and cash equivalents of $52 million compared with $45 million at the end of the prior quarter. Long-term debt was $2.7 billion compared with $2.5 billion at the end of the previous quarter.
The company generated $141.1 million of cash from operating activities and spent $32.9 million on Capex in the quarter.
For 2018, Stericycle lowered its guidance. Revenues are now expected to be in the range of $3.44-$3.52 billion compared with earlier guidance of $3.45-$3.54 billion.
Adjusted earnings are expected in the band of $4.31-$4.41 per share compared with the previously guided range of $4.35-$4.45.
Adjusted EBITDA is projected to be between $736 million and $756 million compared with the $750 million and $775 million anticipated earlier.
Free cash flow guidance has been reduced to the range of $0-$50 million from the previous guidance of $15-$70 million. Capital expenditures are envisioned to be in the range of $145-$160 million compared with $155-$170 million projected previously.
The company now expects to generate $160-$195 million of cash from operating activities for the full year. The previous expectation was $185-$225 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 -7.89% due to these changes.
Currently, Stericycle has a poor Growth Score of F, however its Momentum Score is doing a lot better with a C. Charting a somewhat similar path, 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 D. 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 these revisions indicates a downward shift. It's no surprise Stericycle has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.