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Why Is Stericycle (SRCL) Down 20.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for Stericycle (SRCL - Free Report) . Shares have lost about 20.8% 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 the most recent earnings report in order to get a better handle on the important catalysts.

Stericycle Q1 Earnings & Revenues Lags Estimates

Stericycle’s first-quarter 2019 adjusted earnings of 57 cents per share lagged the Zacks Consensus Estimate by 30 cents and decreased 52.9% year over year. The decrease was due to lower revenues, higher operating costs, impacts of extreme weather conditions, a non-cash goodwill impairment charge associated with Latin America, higher interest expenses and effective tax rate and the absence of gains on share repurchases.

Total revenues came in at $830.1 million, which missed the consensus mark by $34 million and declined 7.3% year over year on a reported and 3.9% on an organic basis. Effects of foreign exchange and divestitures reduced revenues by $24.9 million and $11.9 million, respectively. Extreme weather conditions and one less operating day compared to the same quarter last year also impacted revenues. Acquisitions contributed $6.8 million to the top line.

The company continued its progress with Business Transformation in the quarter and made additional investments toward development of its comprehensive enterprise resource planning (ERP) platform.

Revenues by Service

Regulated Waste and Compliance Services revenues declined 5.7% year over year on a reported basis and 2% organically to $469.2 million. Secure Information Destruction Services revenues increased 5.5% year over year on a reported basis and 4.3% organically to $232 million.

Communication and Related Services revenues fell 33.4% year over year on a reported basis and 30.5% organically to $61.2 million. Manufacturing and Industrial Services revenues fell 21.1% year over year on a reported basis and 7.3% organically to $67.7 million.

Revenues by Geography

Revenues in the Domestic and Canada segment totaled $678.8 million, down 5% year over year on a reported basis and 5.3% organically. The region contributed 82% to total revenues. International revenues fell 16.1% year over year to $151.3 million. It improved 1.9% organically. The region contributed 18% to total revenues.

Profitability Performance

Adjusted gross profit in the reported quarter amounted to $300.7 million, down 16.1 year over year. Adjusted gross profit margin was 36.2%, down from 40.1% in the prior-year quarter.

Adjusted EBITDA was $136.8 million, down 27.7% year over year. Adjusted EBITDA margin was 16.5%, down from 21.2% in the prior-year quarter.

Adjusted operating income was $105 million, down 33.8% year over year. Adjusted operating income margin was 12.6%, down from 17.7% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited the quarter with cash and cash equivalents of $48.2 million compared with $34.3 million at the end of the prior quarter. Long-term debtwas $2.7 billion, roughly flat with the prior-quarter’s figure.

The company generated $36.2 million of cash from operating activities and capex was $66.1 million in the quarter.

2019 Guidance

The company reaffirmed its 2019 guidance. EPS is expected in the range of $3.32 to $3.72. Revenues are anticipated in the range of $3.408-$3.533 billion. Adjusted EBITDA margin is projected between 19.4% and 20.1%.

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 -5.99% due to these changes.

VGM Scores

At this time, Stericycle has a subpar Growth Score of D, however its Momentum Score is doing a lot 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 these revisions indicates a downward shift. Notably, Stericycle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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