Leading waste management company Stericycle, Inc. (SRCL) reported year-over-year improvement in both revenues and net income in second-quarter 2014, aided by accretive acquisitions. The company reported GAAP net income of $81.9 million or 95 cents per share in second-quarter 2014 compared with $78.0 million or 89 cents per share in the year-earlier quarter. The year-over-year improvement in earnings was primarily due to a healthy top-line growth.
Excluding one-time non-recurring items, adjusted earnings for the reported quarter increased 10.9% to $1.03 per share from 93 cents in the year-ago quarter. The adjusted earnings were in line with the Zacks Consensus Estimate.
Revenues & Margins
Revenues for the reported quarter surged 21.7% year over year to $640.8 million, comfortably beating the Zacks Consensus Estimate of $633.0 million. When adjusted for unfavorable foreign exchange impact, revenues recorded a hike of 22.5% over the prior-year period. The increase in revenues was primarily attributable to inorganic growth, which contributed approximately $81.7 million to the $114.3 million year-over-year rise.
Domestic revenues (GAAP) increased 22.8% year over year to $454.5 million in the reported quarter, to which domestic regulated waste and compliance services contributed $429.8 million and $24.7 million was attributable to recalls and returns. International revenues (GAAP) were up 19.2% year over year to $186.3 million.
Gross profit for the reported quarter aggregated $275.3 million, up 15.7% from $237.9 million in the year-ago quarter. Gross margin, however, came in at 43.0% down from 45.2% in the prior-year quarter as the acquisition of the PSC Environmental Services had an unfavorable impact of approximately 200 basis points.
Financial Position
At quarter end, cash and cash equivalents totaled $25.3 million. Net cash provided by operating activities in the first half of the year stood at $238.3 million versus $176.6 million in the year-ago period.
Long-term debt (net of current portion) stood at $1,563.9 million. Debt-to-EBITDA ratio was 2.38x at quarter end. During the quarter, Stericycle increased the borrowing capacity under its revolving credit facility from $1.0 billion to $1.2 billion. The company had an unused borrowing capacity of $512.0 million under its revolving credit facility at quarter end.
Stericycle reported capital expenditure of $227.2 million for the quarter. During the reported quarter, the company repurchased 527,243 shares for $58.8 million. The company currently has an authorization to purchase an additional 5.2 million shares under the share buyback program.
Acquisitions
In the reported quarter, Stericycle closed 13 acquisitions, of which 10 were international and 3 were at domestic locations. The international acquisitions included 2 each in Romania and Chile, and 1 each in Portugal, Brazil, Spain, Canada, the U.K. and South Korea. The acquisitions contributed $5.3 million to revenues during the quarter and $39.0 million on an annualized basis.
Stericycle is continuously on the lookout for strategic acquisitions that will grow market share and expand its geographic base. The acquisition pool of the company remains robust in multiple geographies and lines of business. The global acquisition strategy increases its customer base and provides a long-term growth platform for selling multiple services such as compliance solutions, strong pack and pharma waste.
Guidance
For 2014, Stericycle updated its earnings per share guidance from $4.22 – $4.26 to $4.24 – $4.27, with revenues in the range of $2.54 billion and $2.54 billion, up from $2.51 billion and $2.53 billion. Capital expenditure in 2014 is expected to be between $80 million and $84 million, up from $76 million and $80 million. Free cash flow is expected between $410 million to $417 million.
Stericycle is witnessing strong growth across the globe, driven by lucrative acquisitions and expansion of its portfolio of service offerings. We remain encouraged by the company’s solid performance in the reported quarter and expect the growth momentum to continue in the coming quarters as well.
Stericycle currently has a Zacks Rank #4 (Sell). Other companies in the Business Services sector that are worth mentioning include Waste Management, Inc. (WM), Clean Harbors, Inc. (CLH) and Republic Services, Inc. (RSG), each carrying a Zacks Rank #2 (Buy).
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