US Ecology Earnings Reflect a Business Environment That's Slowly Improving

US Ecology (ECOL) reported second-quarter 2017 results after the market closed on Thursday that suggests that business conditions in the industrial sector are improving, though still challenging. The environmental services company's revenue grew 3% and adjusted earnings per share edged up 2.7% year over year.

US Ecology also reiterated its previously issued 2017 guidance but said adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) is tracking to the lower end of the guidance range. 

The market had a relatively muted reaction, with shares closing down 1.6% on Friday. The stock has returned 9.3% in 2017 through Friday, versus the S&P 500's 11.7%.

US Ecology's results: The raw numbers

Data source: US Ecology. GAAP = generally accepted accounting principles.

Adjusted EPS excludes the impact from foreign currency translation, the non-cash writedown of deferred financing fees, and business development expenses.

For context -- though long-term investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts were looking for US Ecology to turn in adjusted EPS of $0.37 on revenue of $128.47 million. So the company slightly beat the earnings estimate but fell short on revenue.

Image source: Getty Images.

Key base business continues its rebound 

Revenue in US Ecology's key base business, which is part of its environmental-services business, increased 3% from the year-ago period. (The base business doesn't include the "event business," or non-recurring projects of 1,000 tons or more.) This result would have been better, but the company had to shut down of one of its treatment facilities because of severe wind damage in March. The quarter marks two consecutive quarters of revenue growth, suggesting that the base business' rebound has legs.

Year-over-year revenue changes in the base business over the previous few quarters are as follows:

• First-quarter 2017: up 3%.
• Fourth-quarter 2016: down 4%.
• Third-quarter 2016: up 4%.
• Second-quarter 2016: flat.
• First-quarter 2016: up 7%.

What happened with US Ecology in the quarter?

Here's how the two segments performed:  

Data source: US Ecology. 

Within environmental services, treatment and disposal revenue rose 6% and transportation revenue jumped 15% year over year. The field and industrial services' results were negatively affected by the expiration of a contract that wasn't renewed and softer overall market conditions for industrial and remediation services. 

What management had to say

Here's what CEO Jeff Feeler had to say in the press release:

Business conditions continue to develop in line with our expectations for the year. We saw marked improvement in Event Business for our Environmental Services segment in the second quarter of 2017, with growth of 24% compared to the same quarter last year. Base Business for the Environmental Services segment also showed solid gains, up 3% over the second quarter of 2016. This result was offset in part by the shutdown of one of our treatment facilities due to severe wind damage in March. As a result of the lost profit from this facility, we expect to recover $2.5 [million] to $3.5 million in business interruption [insurance] proceeds in the second half of the year. Our Field and Industrial Services Segment delivered results in line with expectations, but down from the prior-year as we cycle a contract that was not renewed in late 2016.

Looking ahead

US Ecology reaffirmed its previously issued full-year 2017 guidance. However, it noted that adjusted EBITDA is tracking to the lower end of the guidance range. 

Data source: US Ecology. *Over 2016 adjusted pro forma EBITDA.