Why Is Stericycle (SRCL) Up 0.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Stericycle (SRCL). Shares have added about 0.9% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Stericycle due for a pullback? 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 Q2 Earnings Miss Estimates

Stericycle reported mixed second-quarter 2019 results with earnings missing the Zacks Consensus Estimate but revenues beating the same.

Adjusted earnings of 56 cents per share lagged the Zacks Consensus Estimate by 27 cents and decreased 52.1% year over year. The decrease was due to lower SOP pricing, pricing pressure in Regulated Waste and Compliance Services (RWCS) and higher operating costs.

Total revenues came in at $845.9 million, which beat the consensus mark by roughly $2 million but declined 4.2% year over year on a reported basis and 0.8% on an organic basis. Effects of foreign exchange rates and SOP pricing reduced revenues by $20.6 million and $8.7 million, respectively. Previously, closed divestitures net of acquisitions reduced revenues by $10.6 million. Organic growth in Secure Information Destruction and RWCS was offset by lower SOP pricing. Communications and Related Services revenue was negatively impacted by fewer recall events.

Revenues by Service

RWCS revenues declined 1.8% year over year on a reported basis but increased 1.4% organically to $475 million. Secure Information Destruction Services revenues declined 0.3% year over year on a reported basis but improved 0.5% organically to $229.4 million. Communication and Related Services revenues fell 22.2% year over year on a reported basis and 16.7% organically to $63.2 million. Manufacturing and Industrial Services revenues fell 11.3% year over year on a reported basis and 0.7% organically to $78.2 million.

Revenues by Geography

Revenues in the domestic and Canada segment totaled $700.4 million, down 1.6% year over year on a reported basis and 1.2% organically. The region contributed 83% to total revenues. International revenues fell 15.3% year over year to $145.4 million. It improved 1.1% organically. The region contributed 17% to total revenues.

Profitability Performance

Adjusted gross profit in the quarter amounted to $304.8 million, down 13.7% year over year. Adjusted gross profit margin was 36%, down from 40% in the prior-year quarter. Adjusted EBITDA was $137.7 million, down 27.9% year over year. Adjusted EBITDA margin was 16.3%, down from 21.6% in the prior-year quarter. Adjusted operating income was $105.6 million, down 33.2% year over year. Adjusted operating income margin was 12.5%, down from 17.9% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited the quarter with cash and cash equivalents of $34.5 million compared with $48.2 million at the end of the prior quarter. Long-term debt was $2.7 billion, roughly flat with the prior-quarter’s figure. The company generated $34.8 million of cash from operating activities and capex was $42.1 million in the quarter.

2019 Guidance

The company updated its 2019 guidance to reflect substantial decline in SOP pricing, higher interest expense, continuing cost pressures and impact of foreign exchange rates. Adjusted EPS is now expected in the range of $2.50 to $2.85, compared with the previous expectation of $3.32 to $3.72. Revenues are anticipated in the range of $3.345 to $3.405 billion compared with the prior anticipation of $3.408-$3.533 billion.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -25.41% due to these changes.

VGM Scores

Currently, Stericycle has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It's no surprise Stericycle has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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