Waste management firm Stericycle, Inc. SRCL reported relatively modest fourth-quarter 2016 results with healthy improvement in revenues on a year-over-year basis. Although non-GAAP earnings for the reported quarter decreased 20.6% year over year to $1.00 per share, it comfortably exceeded the Zacks Consensus Estimate by 7 cents.
GAAP earnings were $12.3 million or 14 cents per share compared with $70.7 million or 82 cents per share in the year-ago quarter. The sharp decline in earnings, despite top-line growth, was primarily due to higher operating costs and selling, general and administrative expenses.
For full-year 2016, Stericycle recorded GAAP earnings of $177.8 million or $2.08 per share compared with $256.9 million or $2.98 per share in 2015. Non-GAAP earnings for 2016 decreased 4.6% year over year to $4.52 per share.
Revenues & Margins
Fourth-quarter revenues were approximately $906.4 million, up 2% year over year on organic growth, and matched the Zacks Consensus Estimate. For full-year 2016, the company registered revenues of $3,562.3 million compared with $2,985.9 million in 2015.
Domestic revenues in the reported quarter were $686.6 million, of which Regulated Waste and Compliance Services contributed $633.6 million and $53 million was attributable to recalls and returns. International revenues were $219.8 million.
Gross profit (GAAP) in the reported quarter was $373.7 million, down 1.8% year over year. Gross margin was 41.2% down from 42.8% in the prior-year quarter. Non-GAAP gross profit remained almost flat at $380.2 million, while non-GAAP gross margin was 42.0% compared with 42.9% in the prior-year period.
Acquisitions & Divestures
During the reported quarter, Stericycle closed nine tuck-in acquisitions (including five in the domestic market and four in the international market). The deals together contributed about $1.1 million to corporate revenues in the quarter. The worldwide acquisition pool of the company remains robust with well over $100 million in annualized revenues in multiple geographies across business lines.
The company divested a U.K.-based hazardous waste asset during the quarter that unfavorably impacted revenues by approximately $0.2 million. The company also made significant progress in Shred-it integration and continued implementation of SQ (small quantity) strategic investments.
As of Dec 31, 2016, cash and cash equivalents were $44.2 million, while long-term debt (net of current portion) was $2,878.1 million compared with the respective tallies of $55.6 million and $3,040.4 million in the year-ago period.
Net cash from operating activities for 2016 was $547.4 million compared with $390.3 million in 2015. The debt-to-EBITDA (earnings before interest, tax, depreciation and amortization) ratio was 3.42x at the quarter end. Stericycle had an unused borrowing capacity of $655 million under its revolving credit facility. Capital expenditure for the quarter was $35.2 million. During the quarter, the company repurchased 105,000 mandatory preferred convertible shares for $6.6 million.
Updated 2017 Guidance
For 2017, Stericycle updated its guidance in accordance with the current market scenario. Earnings are currently expected in the range of $4.54–$4.74 per share, compared with $4.57–$4.77 expected earlier. The company expects revenues to be in the range of $3.51–$3.64 billion ($3.54–$3.67 billion projected earlier), and free cash flow in the range of $450–$470 million (unchanged). Capital expenditure is projected to be in the range of $125–$150 million.
Stericycle currently has a Zacks Rank #4 (Sell). Some better-ranked stocks in the industry include Clean Harbors, Inc. CLH, Republic Services, Inc. RSG and US Ecology, Inc. ECOL, each carrying Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Clean Harbors has a long-term earnings growth expectation of 8.9% and is currently trading at a forward P/E of 61.9x.
Republic Services has a long-term earnings growth expectation of 9.1% and is currently trading at a forward P/E of 24.8x.
US Ecology has a long-term earnings growth expectation of 10.0% and is currently trading at a forward P/E of 28.4x.
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