Stericycle (SRCL) Down 31.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Stericycle (NASDAQ:SRCL). Shares have lost about 31.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Stericycle due for a breakout? 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 Beats on Q4 Earnings, Revenues Lag Estimates

Stericycle reported mixed fourth-quarter 2019 results wherein earnings surpassed the Zacks Consensus Estimate but revenues missed the same.

Adjusted earnings per share of 72 cents beat the consensus mark by 2.9% but declined 30.1% year over year due to sorted office paper (SOP) pricing,higher operating costs, and higher effective tax rate, which were, partially offset by lower interest expense.

Total revenues of $799.9 million missed the consensus mark by 0.4% and declined 6.2% year over year on a reported basis and 0.9% on an organic basis. The downfall was due to divestitures, which reduced revenues by $36.2 million, and macroeconomic factors of SOP pricing and foreign exchange rates, which reduced revenues by $19.3 million and $9.0 million, respectively.

Decline in the company’s Manufacturing and Industrial (M&I) and Communication and Related Services (CRS) businesses were partially offset by organic revenue growth (excluding SOP pricing) of 2% in Regulated Waste and Compliance Services (RWCS) and 1.8% in Secure Information Destruction (SID).

The company has made significant progress on its portfolio rationalization strategy and debt reduction efforts.

On Feb 7, 2020, Stericycle announced that it has inked a deal to sell its Domestic Environmental Solutions business to Harsco Corporation for $462.5 million in cash, subject to customary adjustments. The deal includes Stericycle’s M&I Services and the retail portion of Hazardous Waste Services reported under RWCS, which together employ approximately 2,000 team members across 61 facilities.

In December 2019, Stericycle completed the sale of its operations in Chile to an affiliate of Veolia for roughly $30.7 million.

Revenues by Service

RWCS revenues declined 0.2% year over year to $473.7 million. The segment accounted for 59% of total revenues.

SID revenues declined 6.7% year over year to $217.9 million. The segment contributed 27% to total revenues.

CRS revenues fell 47.4% year over year to $35.9 million. The segment accounted for 5% of total revenues.

M&I revenues of $72.4 million fell 4.9% year over year. The segment contributed 9% to total revenues.

Revenues by Geography

Revenues from the Domestic and Canada were $660.8 million, down 5.7% year over year on a reported basis and 2.1% organically. The region accounted for 83% of total revenues.

International revenues of $139.1 million fell 8.5% year over year. The region contributed 17% to total revenues.

Profitability Performance

Adjusted gross profit in the reported quarter amounted to $285.2 million, down 17.7% year over year. Adjusted gross profit margin was 35.7%, down from 40.6% in the prior-year quarter.

Adjusted EBITDA was $152.8 million, down 15.3% year over year. The decrease was driven by SOP pricing of $19.3 million and higher costs related to hazardous waste operations of $9.8 million. Adjusted EBITDA margin was 19.1%, down from 21.2% reported in the prior-year quarter.

Adjusted operating income was $122.6 million, down 18.5% year over year. Adjusted operating income margin was 15.3%, down from 17.6% in the prior-year quarter.

Balance Sheet & Cash Flow

Stericycle exited fourth-quarter 2019 with cash and cash equivalents of $34.7 million compared with $30.8 million at the end of the prior quarter. Long-term debt came in at $2.56 billion compared with $2.62 billion at the end of the prior quarter.

The company generated $46.8 million of cash from operating activities and capex was $33 million in the quarter. Free cash flow of $13.8 million was generated in the reported quarter.

2020 Guidance

For 2020, Stericycle expects organic revenues in the range of $3.22 to $3.30 billion. Free cash flow is expected between $150 million and $200 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates revision.

VGM Scores

At this time, Stericycle has a poor Growth Score of F, however its Momentum Score is doing a lot better with a B. However, 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 D. 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 has been net zero. Notably, Stericycle has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.