Stericycle Beats on Q1 Earnings - Analyst Blog

Leading waste management company Stericycle, Inc. SRCL reported year-over-year improvement in both revenues and net income in first-quarter 2014, aided by accretive acquisitions. The company reported net income of $79.1 million or 91 cents per share in first-quarter 2014 compared with $74.6 million or 85 cents per share in the year-earlier quarter.

Excluding one-time non-recurring items, adjusted earnings for the reported quarter were $1.04 per share versus 88 cents in the year-ago quarter. The adjusted earnings comfortably beat the Zacks Consensus Estimate of 99 cents.

Revenues & Margins

Revenues for the reported quarter were up 10.9% year over year to $570.0 million, narrowly missing the Zacks Consensus Estimate of $572.0 million. When adjusted for unfavorable foreign exchange impact of $8.1 million, revenues recorded a hike of 12.5% over the prior-year period. The increase in revenues was primarily attributable to inorganic growth, which contributed approximately $32.9 million to the $56.2 million year-over-year rise.

Domestic revenues (GAAP) increased 7.8% year over year to $392.1 million in the reported quarter, to which domestic regulated waste and compliance services contributed $369 million and $23.1 million was attributable to recalls and returns. International revenues (GAAP) were up 18.5% year over year to $177.9 million.

Gross profit for the reported quarter aggregated $255.5 million, up 1% from $232.1 million in the year-ago quarter. Gross margin came in at 44.8%, marginally down from 45.2% in the prior-year quarter.

Financial Position

As of Mar 31, 2014, cash and cash equivalents totaled $43.1 million, considerably higher than the $12.7 million recorded on Mar 31, 2013. Net cash provided by operating activities in the reported quarter stood at $144.5 million versus $98.2 million in the year-ago period.

Long-term debt (net of current portion) stood at $1,246.1 million compared with $1,280.7 million in the year-ago period. Debt-to-EBITDA ratio was 2.0x at quarter end. The company had an unused borrowing capacity of $631.0 million under its revolving credit facility.

Stericycle reported capital expenditure of $16.4 million for the quarter. During the reported quarter, the company repurchased 685,990 shares for $78.3 million. The company has an authorization to purchase an additional 5.7 million shares under the share buyback program.
    
Acquisitions

In the reported quarter, Stericycle closed 5 acquisitions, of which 3 were international and 2 were at domestic locations. The international acquisitions were in Portugal. The acquisitions were neutral to revenues during the quarter, but when annualized, they would contribute $14.6 million.

This quarter saw the completion of the acquisition of the PSC Environmental Services division. This deal would be accretive to earnings per share EPS this year and is expected to add about $165 million to revenues for the rest of this year, with annualized revenues at about $240 million. The transaction will be accretive to EPS this year.

Synergies from the acquisition include cutbacks in disposal costs and improved route and long-haul efficiencies. The deal would enable Stericycle to expand its geographical footprint and further develop its operational infrastructure. PSC Environmental is expected to augment the firm's profits and revenues in its healthcare and StrongPak retail service offerings.

Guidance  
 
For 2014, Stericycle expects earnings per share to be in the range of $4.22 to $4.26 with revenues in the range of $2.51 billion and $2.53 billion. Capital expenditure is expected to be between $76 million and $80 million in 2014.

PSC Environmental is expected to add 3–4 cents to EPS, while contributing $165 million to revenues in 2014. Integration of the unit is expected to have an initial negative impact on gross margins to the extent of 240–245 basis points, on a full-quarter basis. The gross margins are likely to improve sequentially as synergies are realized over the year.

Stericycle is witnessing strong growth across the globe, driven by lucrative acquisitions and expansion of its portfolio of service offerings. We remain encouraged by the company's solid performance in the reported quarter and expect the growth momentum to continue in the coming quarters as well.

Stericycle currently has a Zacks Rank #2 (Buy). Other companies in the Business Services sector that are worth mentioning include Convergys Corporation CVG, EnerNOC, Inc. ENOC and HNI Corp. HNI, each carrying a Zacks Rank #1 (Strong Buy).