Clean Harbors (CLH) Q4 Earnings Miss Estimates, Stock Falls

Waste management services provider Clean Harbors, Inc. (NYSE:CLH) reported decent fourth-quarter 2017 results with adjusted earnings of 1 cent per share, owing to one-time gains and costs against a loss of 6 cents in the prior-year quarter. The year-over-year improvement stemmed from well-executed top-line strategy, improving macroeconomic environment and favorable industry trends. Adjusted earnings for the quarter, however, missed the Zacks Consensus Estimate by 4 cents. Consequently, shares declined 3.9% post the earnings release to close at $48.06 yesterday.

GAAP earnings for the reported quarter were $84.2 million or $1.48 per share against a loss of $12.7 million or loss of 22 cents per share in the year-earlier quarter. GAAP earnings for full-year 2017 were $100.7 million or $1.76 per share against a loss of $39.9 million or loss of 69 cents per share in the prior year. The improvement was primarily due to healthy top-line growth and significant net benefit from tax law changes.

Revenues for the fourth quarter were $747.4 million, up 8% from the prior-year quarter owing to successful execution of top-line strategy resulting in growth across all four reporting segments. Also, the top line beat the Zacks Consensus Estimate of $724 million. Revenues for 2017 were $2,945 million, up 7% from $2,755.2 million a year ago.

Adjusted EBITDA (earnings before interest, tax, depreciation and amortization) for the fourth-quarter increased 6% to $101.8 million from $95.9 million in the year-ago quarter. The improvement was largely driven by higher waste volumes, cost reductions and improved pricing.

Clean Harbors, Inc. Price, Consensus and EPS Surprise

Clean Harbors, Inc. Price, Consensus and EPS Surprise | Clean Harbors, Inc. Quote

Segmental Performance

Technical Services accounted for 38.8% of total revenues in the reported quarter and improved 9.3% year over year to $289.9 million as landfill volumes improved 18% due to higher base business and enhanced project work. Adjusted EBITDA for the quarter improved to $72.7 million from $69.6 million in the prior-year period.

Industrial and Field Services revenues accounted for 20.9% of total revenues in the reported quarter. The segment’s revenues increased to $156.1 million from $141 million in the prior-year quarter. Adjusted EBITDA decreased to $6.4 million from $12.6 million due to customer pricing pressures and some one-time costs.

Safety-Kleen revenues increased to $272.5 million from $260.3 million in the prior-year quarter owing to rollout of closed loop offering, selling and delivering lubricants directly to more than 15,000 unique customers. Adjusted EBITDA improved to $66.8 million from $54.2 million in the year-ago quarter due to increase in base oil and blended pricing supported by spread management in the re-refining business and cost reductions associated particularly with the national customer care center.

Oil, Gas and Lodging Services revenues increased 10.9% to $28.2 million due to higher occupancy rates in fixed lodges. Adjusted EBITDA was $0.7 million as against a negative EBITDA of $3.4 million in the year-ago quarter owing to higher number of rigs serviced.

Acquisition

In the quarter, Clean Harbors completed acquisition of Veolia North America’s U.S. Industrial Cleaning Services Division for $120 million. The acquired business generated revenues approximately $210 million in 2017, employs roughly 1,300 employees and maintains an extensive fleet of vehicles and equipment at more than 60 operating locations across the United States. Clean Harbors will enjoy numerous benefits from this buyout. The company intends to pass on the benefits to their customers, shareholders and industrial services employees. It will provide significant scale and industrial services capabilities for the company while doubling the size of existing U.S. Industrial Services business. The acquired business’ operational footprint particularly its strong presence in the Midwest will complement Clean Harbors’ existing network of locations. An addition of this business will create new cross-selling opportunities and drive incremental volumes into waste disposal network. The company aims to enhance long-term shareholder value and support profitable growth momentum in 2018 and beyond.

Balance Sheet and Cash Flow

At year-end 2017, cash and cash equivalents were $319.4 million while long-term debt was $1,625.5 million compared with the respective tallies of $307 million and $1,633.3 million in the prior-year.

Cash flow from operating activities was $285.7 million compared with $259.6 million a year ago. For 2017, adjusted free cash flow totaled $140.2 million compared with $61 million in the prior-year.

2018 Guidance

Clean Harbors gave a bullish outlook for 2018 with adjusted EBITDA in the range of $440−$480 million. On a GAAP basis, the company anticipates net income in the range of $17−$56 million. For the year, Clean Harbors expects net cash from operating activities between $295 million and $345 million. Adjusted free cash flow is expected to be in the range of $125 million to $155 million.

Clean Harbors is focused on enhancing operating margins through better pricing, improving revenue mix, increasing efficiencies and capitalizing on growth initiatives. It expects Tech Services to deliver higher earnings due to new incinerator’s second full year of operation and the strength of the industrial economy, particularly expansion in the chemical space.

Zacks Rank & Key Picks

Clean Harbors carries a Zacks Rank #3 (Hold). Better-ranked stocks in the industry include Republic Services, Inc. (NYSE:RSG) , Waste Management, Inc. (NYSE:WM) and Waste Connections, Inc. (NYSE:WCN) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Republic Services has a long-term earnings growth expectation of 10.2%. It pulled off a positive earnings surprise of 5.1% in the trailing four quarters.

Waste Management has a long-term earnings growth expectation of 10.9%. It has a positive earnings history, beating estimates thrice in the trailing four quarters with an average earnings surprise of 0.9%.

Waste Connections has a long-term earnings growth expectation of 11%. It delivered a positive earnings surprise of 5.2% in the trailing four quarters.

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