Stericycle, Inc. SRCL reported better-than-expected first-quarter 2018 results.

Adjusted earnings of $1.21 per share surpassed the Zacks Consensus Estimate by 17 cents and increased 11% on year-over-year basis. Earnings benefited from strong business performance and U.S. tax reform.

Revenues of $895 beat the consensus mark by $10 million and increased 0.3% year over year. The growth can be attributed to continued strength across Secure Information Destruction and Retail Hazardous Waste and Hospital Compliance Services.

In the quarter, Stericycle closed nine tuck-in acquisitions (all in the domestic market, with eight in Secure Information Destruction and one in Regulated Medical Waste). The deals together contributed about $0.7 million to corporate revenues.

The company is making progress with its Business Transformation initiatives, which it began to execute during the fourth quarter of 2017. The five key initiatives include portfolio rationalization, operational optimization, organizational excellence and efficiency, commercial excellence and strategic sourcing.

The business transformation led to financial savings from organizational restructuring, operational optimization projects and strategic sourcing initiatives; placement of a dedicated internal ERP implementation team and third-party system integrator; development of strategic blueprint for target operating model and initiation of detailed design phase of the enabling technology in the first quarter.

In the quarter, Stericycle achieved $8 million in recurring adjusted EBITDA transformation savings.

We observe that shares of Stericycle have gained 0.9% in the past month against the industry’s decline of 1.4%.

Let’s delve deeper into the numbers

Revenues in Detail

Revenues decreased 1% year over year on a constant currency basis. Organic revenues for the quarter declined 0.6%. Acquisitions contributed $7.1 million to quarterly revenues while divestitures reduced the same by $10.8 million.

By geography, revenues from the United States and Canada were $714.7 million, up 0.5% year over year while International revenues decreased 0.7% year over year to $180.3 million.

By service, Regulated Waste and Compliance Services revenues declined 2.7% to $497.4 million on a year-over-year basis. Secure Information Destruction Services revenues increased 7.7% to $219.9 million. Communication and Related Services revenues decreased to $91.9 million from $93.5 million in the year-ago quarter. Manufacturing and Industrial Services revenues were up 2.6% to $90.7 million.

Stericycle, Inc. Revenue (TTM)

Profitability Performance

Adjusted gross profit in the reported quarter was $358.5 million, down 2.8% year over year. Adjusted gross profit margin was 40.1%, down from 41.3% in the prior-year quarter.

Adjusted EBITDA was $189.3 million, down 5.1% year over year. Adjusted EBITDA margin was 21.2%, down from 22.4% in the prior-year quarter.

Adjusted selling, general and administrative expenses (SG&A) of $200 million increased 0.9% year over year. As a percentage of sales, SG&A was 22.3%, up from 22.2% in the year-ago quarter.

Financial Position

As of Mar 31, 2018, cash and cash equivalents were $49.4 million while long-term debt (net of current portion) was $2.59 billion compared with the respective tallies of $42.2 million and $2.62 billion in the prior-quarter period. Net cash from operating activities was $110.4 million. Capital expenditure was $28.5 million.

The debt-to-EBITDA ratio was 3.25 at quarter end. Stericycle had an unused borrowing capacity of $635 million under its revolving credit facility. During the quarter, the company repurchased 151,900 mandatory preferred convertible shares for $7.4 million. At the end of the quarter, Stericycle had authorization to purchase additional 2.5 million shares. Dividends paid on mandatory convertible preferred stock was $8.8 million.

Guidance

For 2018, Stericycle raised its revenue guidance. Revenues are now expected to be in the range of $3.50 to $3.64 billion compared with the previously guided range of $3.48-$3.63 billion. The midpoint of the guided range is higher than the Zacks Consensus Estimate of $3.56 billion.

The company continues to expect adjusted earnings in the range of $4.45-$4.85 per share and free cash flow in the range of $330-$400 million. The Zacks Consensus estimate for earnings is pegged at $4.58. Capital expenditure is projected to be in the range of $160-$180 million.

Zacks Rank & Upcoming Releases

Stericycle currently has a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services sector are keenly awaiting earnings reports from key players like Gartner, Inc. IT, The Dun & Bradstreet Corp. DNB and Broadridge Financial Solutions Inc. BR. While Garter and Dun & Bradstreet will release first-quarter 2018 results on May 8 and May 9, respectively, Broadridge will report third-quarter fiscal 2018 numbers on May 8.

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