Image source: Wisconsin Department of Natural Resources/Flickr.

US Ecology (NASDAQ:ECOL) reported third-quarter 2015 earnings after the market closed on Thursday. The environmental services leader's revenue and earnings fell short of its expectations as well as its year-ago results, which the company attributed to short-term market headwinds that it expects to last through the fourth quarter. As a result, it notched down its full-year 2015 guidance. 

US Ecology results: The raw numbers

 Metric

Q3 2015

Q3 2014

Growth (YOY)

Revenue

$148.4 million

$170.9 million

(13.2%)

Adjusted EBITDA

$33.8 million

$40.4 million

(16.3%)

Operating income

$22.4 million

$26.8 million

(16.4%)

Net income

$9.9 million

$13.3 million

(25.6%)

GAAP EPS

$0.46

$0.61

(24.6%)

Adjusted EPS

$0.50

$0.65

(23.1%)

Data source: US Ecology.

What happened with US Ecology this quarter?
Both segments contributed to the year-over-year declines in the overall numbers.

  • Revenue for the environmental services segment was $96.3 million, down from $108.0 million in the year-ago period. This decline was due to a 10% decrease in treatment and disposal revenue and a 15% decrease in transportation revenue.
  • Adjusted EBITDA for the ES segment came in approximately 10% lower than management expected. One factor involved was a 22% decline in its project-driven event business due to an expected reduction in volume from an East Coast cleanup project and unanticipated lower replacement work as a result of project deferrals and shipment schedules. The second factor was an approximate 7% dip in the company's base business driven by lower business activity in key verticals such as chemical and metals manufacturing.
  • Revenue for the field and industrial services segment was $52.1 million, down from $62.8 million in the year-ago period. Management attributed the drop primarily to lower remediation services work and lower transportation revenue.
  • Adjusted EBITDA for the FIS segment fell approximately 12% short of the company's expectations.

Since US Ecology expects the headwinds that it encountered this quarter to continue into next quarter, it lowered its full-year 2015 guidance.

  • The company now expects 2015 adjusted EBITDA for its core business (excludes the full-year impact of Allstate Power-Vac, which it expects to be divested on Nov. 1) to range between $122 million and $125 million, down from its previously issued guidance of $128 million to $132 million.
  • It now anticipates 2015 adjusted EPS to range between $1.73 and $1.80, down from its previous range of $1.76 to $1.92. This guidance reflects an approximate $0.03 contribution from the Allstate business for the company's ownership period in 2015.

What management had to say
"Third quarter operating results did not materialize as we had expected," commented Chairman and CEO Jeff Feeler. "Many factors contributed to these lower than anticipated results but slower business activity and deferment of remedial project based Event Business were the primary contributors."

The company anticipates a better 2016. Said Feeler:

We believe the current quarter challenges are short-term and reflect a changing business cycle as manufacturers and select Base business customers adjust for slowing growth in 2015. As we cycle through the completion of some of our larger project-based business, market opportunities continue to be strong. We have secured work that has commenced the reloading of remedial cleanup projects for 2016 and with a solid pipeline we remain optimistic in our long-term prospects and market position.

Looking forward
US Ecology had a tough quarter, though this appears to be due to cyclical market headwinds rather than execution issues. The company has a solid position in the industry and a strong moat, so once market conditions improve, US Ecology's performance should get back on track.  

Positively, once the sale of the low-margin Allstate Power-Vac business is completed on Nov. 1, the company should have an easier time boosting margins. Allstate is an industrial cleaning service that US Ecology acquired in the second quarter of last year as part of its huge buyout of competitor EQ Holdings. The sale of this business, which isn't complementary to US Ecology's core operations, will also enable the company to pay down the considerable debt it accrued when it acquired EQ.

Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends U.S. Ecology. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.