US Ecology's Q1 Earnings Show It Continues to Clean Up Its Results

Image source: US Ecology. 

US Ecology (ECOL) reported first-quarter 2016 results after the market closed on Thursday. As expected, the provider of environmental services to business and government entities experienced a decline in revenue and adjusted earnings from the year-ago period due to the continuation of a slowdown in the industrial sector. However, its key base business continued its rebound from last quarter and the company reaffirmed its 2016 guidance, which reflects optimism that 2016 will be a better year than 2015. 

US Ecology's key quarterly numbers

Data source: US Ecology. *Allstate Power Vac was sold on Nov. 1.

Half of the improvement in operating income was due to the sale of Allstate, which the company obtained when it acquired competitor EQ Holdings in 2014. This low-margin industrial cleaning business had an operating loss of $398,000 in the first quarter of 2015. Investors should expect to see continued year-over-year improvements in 2016 of various metrics, including margins, debt load, and cash flow, due to this divestiture.

Analysts were looking for adjusted EPS of $0.28 on revenue of $111.9 million, so US Ecology soundly beat earnings estimates and edged past revenue expectations. Long-term investors shouldn't pay much heed to analysts' estimates since Wall Street focuses on the short term. However, these expectations can be useful to know because they often help explain market reactions.

Base business continued its rebound from last quarter
US Ecology's operating results and adjusted EBITDA came in better than it anticipated due to stronger-than-expected results in its base business, thanks to continued improvement in key verticals. (This business, part of its environmental services segment, doesn't include its "event business," which it now defines as non-recurring projects of 1,000 tons or more.)

Said CEO Jeff Feeler in the press release:

First quarter operating results and adjusted EBITDA came in better than expected on the strength of our Base Business and continued improvement in our Field and Industrial Services group. Our Base Business grew 7% over the first quarter of last year on solid performance in verticals such as refining and general manufacturing. As expected, we experienced a decline in our Event Business as we cycle the completion of a large [E]ast [C]oast clean-up project.

Segment performance 
The environmental services (ES) segment generated $81.5 million in revenue, down nearly 4% from $87.4 million in the first quarter of 2015. This decline consisted of year-over-year decreases of 7% in treatment and disposal revenue and 5% in transportation revenue. Gross profit was $30.5 million, down more than 8% from $33.2 million in the year-ago period.

The field and industrial services (FIS) segment generated $31.8 million in revenue, down from $49.3 million in the year-ago period. The divested Allstate business contributed $13.9 million of revenue in the year-ago period. The remainder of the decrease in revenue was primarily due to lower transportation service revenue associated with now-completed event business. Gross profit was $4.8 million. This compares to gross profit of $6.7 million in the year-ago period, which included $2.6 million from Allstate. Excluding Allstate, gross profit increased 17%, a very favorable development that should continue to bode well for this segment. 

Looking ahead 
US Ecology reaffirmed its 2016 adjusted EBITDA and EPS guidance, but didn't mention its revenue guidance. 2016 guidance established last quarter is as follows:

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.

Going into earnings, analysts were projecting that the company would earn $1.87 per share on revenue of $511.9 million in 2016. So the consensus for earnings falls about mid-range of the company's guidance, while analysts expect revenue to come in at the low-to-mid range of guidance.

US Ecology posted encouraging results that should bode well for the remainder of the year.  

We should know more after the company holds its analyst conference call on Friday at 10 a.m. EDT.