- Economic picture: During Thursday’s earnings call, CEO Cindy Miller said continued operating efficiencies, along with the rollout of a new enterprise resource planning software, will “contribute significantly to our ability to achieve the margin expansion embedded in our long-term outlook.” One major facet of the new ERP system is its ability to track how waste is picked up, treated and disposed in real time.
- Recycling revenues: Stericycle saw continued lower revenues from recycled paper. In Q3, recycled paper revenues were down 7.6%, or $16.3 million, which CFO Janet Zelenka attributed to less tonnage and lower pricing for sorted office paper. Stericycle is typically able to offset about 60% of the lower SOP recycling revenue through a recycling recovery surcharge when such prices are below $192 a ton. However, because year-over-year declines in paper prices were over $100 a ton, Stericycle is only able to offset about 30% of that volatility for the rest of 2023.
- Labor and workforce: In October, Stericycle launched a “targeted workforce reduction” meant to generate $8 million in savings. Miller did not mention how many direct layoffs could be part of the process, but said overall the company was also “leaning into attrition with controlled hiring” as a major strategy.
- Secure information destruction: Stericycle attributed its decreased SID revenue to lower commodity revenues of $30.1 million, as well as lower fuel and environmental surcharges. Stops in service have declined about 4% year over year, but some customer sites are still closing or reducing their service frequencies. “National Secure Information Destruction customers are experiencing a reset in their post-COVID pandemic office footprint. Across the secure information destruction business, we believe we remain an essential service and are retaining these customer relationships,” said Miller.
- Divestitures: The company is also continuing its strategy of divesting certain international assets. It divested a Netherlands dental recycling business and UAE secure information destruction joint venture in Q3. Such divestitures accounted for $32.4 million in revenue, which was partially offset by favorable foreign exchange rates of $6.1 million. In October, it also divested from a regulated waste business in Romania.
- Updated guidance: Commodity volatility has prompted Stericycle to adjust its 2023 organic revenue growth rate guidance. The range is now 2% to 3%, down from previous guidance of 3% to 5%. The company also modified its free cash flow guidance to the $170 million to $190 million range, down from $175 million to $205 million. This is mainly due to timing on capital expenditures for a medical waste incinerator in Nevada, a self-insurance settlement and “severance associated with our targeted workforce reduction,” Zelenka said.
Stericycle announces ‘workforce reduction’ plan, lowers guidance
Stericycle expects future efficiencies from its new ERP system, but is facing headwinds from commodity volatility.
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