Stericycle Beats Q3 Earnings, Offers Initial 2015 Outlook - Analyst Blog

Leading waste management company Stericycle, Inc. (SRCL) reported year-over-year improvement in both revenues and net income in third-quarter 2014, aided by accretive acquisitions. The company reported GAAP net income of $82.8 million or 96 cents per share in third-quarter 2014 compared with $80.5 million or 92 cents per share in the year-earlier quarter. The year-over-year improvement in earnings was primarily due to healthy top-line growth.

Excluding one-time non-recurring items, adjusted earnings for the reported quarter increased 12.4% to $1.08 per share from 96 cents in the year-ago quarter. The adjusted earnings exceeded the Zacks Consensus Estimate by a couple of cents.

 

Revenues & Margins

GAAP revenues for the reported quarter surged 24.9% year over year to $667.9 million, comfortably beating the Zacks Consensus Estimate of $661.0 million. When adjusted for unfavorable foreign exchange impact, revenues recorded a 25.7% hike over the prior-year period. The increase in revenues was primarily attributable to inorganic growth, which contributed approximately $93.8 million to the $133.3 million year-over-year rise.

Domestic revenues (GAAP) increased 24.5% year over year to $470.7 million in the reported quarter, to which domestic regulated waste and compliance services contributed $454.1 million and $16.6 million was attributable to recalls and returns. International revenues (GAAP) were up 26.1% year over year to $197.2 million.

Gross profit for the reported quarter aggregated $278.7 million, up 15.4% from $241.4 million in the year-ago quarter. Gross margin, however, came in at 41.7% down from 45.2% in the prior-year quarter.

Financial Position

At quarter end, cash and cash equivalents aggregated $42.0 million. Net cash provided by operating activities for the first nine months of the year was $345.0 million versus $336.1 million in the year-ago period.

Long-term debt (net of current portion) stood at $1,512.3 million. Debt-to-EBITDA ratio was 2.26x at quarter end. Stericycle had an unused borrowing capacity of $568.0 million under its revolving credit facility.

Stericycle reported capital expenditure of $22.6 million for the quarter. During the reported quarter, the company repurchased 198,728 shares for $23.2 million. The company currently has an authorization to purchase an additional 5 million shares under the share buyback program.
    
Acquisitions

In the reported quarter, Stericycle closed 16 acquisitions, of which 10 were international and 6 were at domestic locations. The international acquisitions included 2 each in Spain, the U.K. and Japan; and 1 each in Romania, Chile, Portugal and Canada. The acquisitions contributed $3.9 million to revenues during the quarter and $27.3 million on an annualized basis.

Stericycle is continuously on the lookout for strategic acquisitions that will enhance market share and expand its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business. The global acquisition strategy increases its customer base and provides a long-term growth platform for selling multiple services such as compliance solutions, strong pack and pharma waste.

Guidance  
 
For 2014, Stericycle narrowed its earnings guidance to $4.26 – $4.27 per share, with revenues in the range of $2.55 billion to $2.57 billion. Capital expenditure in 2014 is expected to be between $82 million and $86 million, up from $80 million and $84 million. Free cash flow is expected between $413 million to $420 million.

Stericycle also provided preliminary guidance for 2015. The company expects earnings to be within $4.69 – $4.75 per share, with revenues in the range of $2.82 billion to $2.87 billion. Capital expenditure in 2015 is expected to be between $96 million and $100 million, while free cash flow is expected within $449 million to $460 million.

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 #3 (Hold). Other companies in the industry that are worth mentioning include Waste Connections Inc. (WCN), Progressive Waste Solutions Ltd. (BIN) and Vertex Energy, Inc. (VTNR), each carrying a Zacks Rank #2 (Buy).

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