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Why Is Clean Harbors (CLH) Down 10.5% Since Last Earnings Report?

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It has been about a month since the last earnings report for Clean Harbors (CLH - Free Report) . Shares have lost about 10.5% 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 catalysts.

Clean Harbors Beats on Q1 Earnings, Misses Revenues

Clean Harbors’ first-quarter 2019 adjusted earnings per share came in at 9 cents against a loss of 12 cents in the year-ago quarter. Earnings beat the Zacks Consensus Estimate by 7 cents. Total revenues of $780.8 million lagged the consensus estimate by $13.6 million but increased 4.1% year over year.

Revenues by Segment

Environmental Services revenues of $509.02 million increased 7.7% year over year on the back of contributions from Veolia Industrial acquisition and organic growth. The segment accounted for 65% of total revenues.

Safety-Kleen revenues of $272.48 million declined 1.9% year over year due to lower base oil prices, and severe cold weather and subsequent flooding hampering its production and transportation activities. The segment contributed 35% to total revenues.

Profitability Performance

Adjusted EBITDA increased 15.2% year over year to $101.66 million on strength across Environmental Services Segment, which more than offset the decline in Safety-Kleen segment. Adjusted EBITDA margin increased 120 basis points (bps) year over year to 13%.

Segment wise, Environmental Services’ adjusted EBITDA was $89.51 million, up 45.7% year over year on the back of pricing initiatives, cost reductions, productivity improvements and some one-time gains.

Safety-Kleen’s adjusted EBITDA of $54.79 million declined 11.5% year over year due to lower volumes sold and base oil blended pricing. Parts washer revenues were also down in the reported quarter.

Balance Sheet & Cash Flow

Clean Harbors exited first-quarter 2019 with cash and cash equivalents of $167.37 million compared with $226.51 million at the end of the prior quarter. Inventories and supplies were $200.81 million, up from $199.48 million in the prior quarter. Long-term debt of $1.56 billion was flat with the prior quarter.

The company generated $29.7 million in cash from operating activities in the reported quarter. Adjusted free cash flow was $24.9 million.

During the reported quarter, the company repurchased 97,000 shares for average price of around $56 per share for a total of $6.3 million.

Guidance

The company updated its guidance for 2019. It now expects adjusted EBITDA of $510-540 million compared with the prior guided range of $500-$540 million. Segment wise, adjusted EBITDA for Environmental Services is anticipated to increase in the high single digit to low teens percentage. Safety-Kleen’s adjusted EBITDA is expected to grow in the low-single-digit range.

Net income is now anticipated in the range of $77-$110 million compared with the previously guided range of $70-$110 million.

Adjusted free cash flow is expected to be $190-$220 million. Net cash from operating activities is projected between $380 million and $430 million. Adjusted effective tax rate is expected to be 28-31%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

Currently, Clean Harbors has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

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.


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