Stericycle (NASDAQ:SRCL) is working on several business transformation initiatives aimed at reinvigorating sales and boosting its profitability. While the company continued to make progress on that plan in the third quarter, it hasn't yet turned around its financial results. 

Stericycle results: The raw numbers

Metric

Q3 2018

Q3 2017

Change (YOY)

Revenue

$854.9 million

$882.8 million

-3.2%

Adjusted net income

$93.5 million

$99.5 million

-6%

Adjusted EPS

$1.03

$1.10

-6.4%

Data source: Stericycle. YOY= year over year.

What happened with Stericycle this quarter?

Several issues affected results:

  • Revenue from Stericycle slipped compared to the year-ago period, though it was in line with the company's guidance. While recent acquisitions added $7.7 million to the top line, asset sales, foreign exchange fluctuations, and continued weakness in the company's small quantity medical waste business as well as a further decline in communication and related services weighed on results.
  • Stericycle partially offset those trouble spots by delivering strong revenue growth from its secure information destruction services segment. Overall, revenue from this business unit rose 9.1% on an organic basis to $227.6 million, with sales up an even faster 11.2% after factoring in acquisitions and adjusting for foreign exchange fluctuations.
  • While the company's adjusted earnings slumped 6%, that was in line with its guidance.
  • Cash flow from operations through the end of the third quarter plunged 77.1% compared to the same period of 2017, to $89.9 million, because the company paid out $295.0 million to settle a customer class action lawsuit. Stericycle used the remaining cash, plus $53.3 million in borrowings, to fund its capital expenditures and acquisitions, as well as pay dividends to preferred shareholders and repurchase some of its preferred stock.
A gloved hand disposing medical waste in a container.

Image source: Getty Images.

What management had to say

CEO Charlie Alutto commented on the quarter and the progress of the company's business transformation by stating that:

The fundamentals of our Regulated Waste and Compliance Services and Secure Information Destruction businesses remain strong, as both businesses exceeded our expectations. Key trends, including a large aging population and heightened focus on information security, continue to drive growth in our markets. Additionally, our strong leadership position, the benefits of our Business Transformation and the expected efficiencies from our new ERP (enterprise resource planning) system will provide Stericycle with a robust long-term growth platform.

The company's business transformation program has already provided $39.8 million in incremental adjusted EBITDA benefits so far this year. As a result, the company remains on pace to achieve its target of realizing $60 million to $65 million of adjusted EBITDA benefits in 2018.

Looking forward

Even though the quarter was in line with Stericycle's guidance and its business transformation is on track, the company once again reduced its full-year guidance:

Metric

Updated Guidance

Prior Guidance

Initial Guidance

Revenue

$3.44 billion to $3.52 billion

$3.45 billion to $3.54 billion

$3.48 billion to $3.63 billion

Adjusted EBITDA

$736 million to $756 million

$750 million to $775 million

$760 million to $810 million

Free cash flow

$0 to $50 million

$15 million to $70 million

$330 million to $400 million

Adjusted earnings per share

$4.31 to $4.41

$4.35 to $4.55

$4.45 to $4.85

Data source: Stericycle.

However, Stericycle remains confident that its business transformation plan can grow adjusted earnings per share at a 6% to 10% annual rate through 2022.

Matthew DiLallo owns shares of Stericycle. The Motley Fool recommends Stericycle. The Motley Fool has a disclosure policy.