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What to Watch When US Ecology Reports Q1 Earnings

By Beth McKenna - Apr 25, 2016 at 1:33PM

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Investors in the environmental services company should focus on whether the market headwinds it encountered in 2015 are subsiding and if its base business has continued its rebound.

Image source: US Ecology.

US Ecology (NASDAQ: ECOL) reports its first-quarter 2016 results after the market closes on Thursday, April 28. Investors will soon learn whether the cyclical market headwinds the company faced in 2015 have subsided in 2016, as the company expected. 

US Ecology stock's total return is negative 13% for the one-year period through April 22, reflecting the challenging industrial macroeconomic environment last year. Positively, however, the stock has strongly rebounded since the company reported encouraging fourth-quarter 2015 results in its base business in February, and, in fact, it's returned more than 16% in 2016.

Here's what to focus on in US Ecology's report.

The headline numbers 
Here are the previous period's results to use as benchmarks:


Q1 2015 Result


$136.7 million

Earnings per share


Data source: US Ecology.

Long-term investors shouldn't pay much heed to analysts' estimates, since Wall Street is short-term-oriented. That said, these expectations often help to explain market reactions, so it's worth noting that analysts are looking for quarterly earnings per share of $0.28 on revenue of $111.9 million, representing a year-over-year earnings contraction of 20% on a revenue contraction of 18.1%.

US Ecology only provides full-year guidance, so we don't have the company's internal expectations for the quarter upon which to gauge its results.

Will the base business continue its rebound?
US Ecology's operating results and pro forma adjusted EBITDA came in slightly better than it anticipated last quarter due to stronger-than-expected results in its base business, driven by a rebound in key verticals such as chemical, general, and metals manufacturing. (The "base business" doesn't include the "event business," which the company now defines as non-recurring projects of 1,000 tons or more.) Growth in the base business was 3% year over year and 6% sequentially from the third quarter. While this was modest growth, it was nonetheless encouraging.

CEO Jeff Feeler said last quarter that the company expected to continue to experience some headwinds in 2016 as its industrial customers adjust to slower growth in an uncertain global macroeconomic environment. However, he was also optimistic that the base business rebound experienced in the fourth quarter would support base business growth in 2016.

Improvements due to Allstate Power Vac sale
Ideally, we'd like to see some progress on improvements in cash flow, debt load, and/or margins due to the divestiture of Allstate Power Vac on Nov. 1, 2015. This was a low-margin industrial cleaning services business that the company obtained when it acquired competitor EQ Holdings in 2014.

US Ecology said that it planned to use the majority of the proceeds obtained from the sale to pay down its debt load, which significantly increased when it bought EQ, and that the sale would improve its cash flow.

Looking ahead
We'd like to see US Ecology at least reaffirm the full-year 2016 guidance that it provided last quarter, which is as follows:


FY 2016 Guidance

Growth (YOY)


$502 million-$528 million


Adjusted EBITDA

$126 million-$132 million





Data source: US Ecology. *Revenue growth on pro forma basis, excludes Allstate's revenue in 2015. **EPS growth when adding back the amortization of deferred financing fees and the higher tax expense.

US Ecology's results will likely reflect another challenging quarter, though, hopefully, they'll show signs that market conditions are better. Once they improve, US Ecology's results should, too, as long as it continues to maintain its strong competitive position and moat.


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