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US Ecology Q2 Earnings on Thursday: Base Business Will Again Be Key

US Ecology (NASDAQ: ECOL) reports its second-quarter 2016 results after the market closes on Thursday, July 28.

The environmental services company's base business revenue results over the past two quarters have been encouraging, suggesting that the industrial macroeconomic environment has notably brightened since last year.

US Ecology stock has rebounded nicely along with the company's base business. It's returned 32.5% in 2016, through July 20, lifting its one-year return to 6.3%.

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

Image source: US Ecology. 

The headline numbers 

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

Metric 

Q2 2015

Revenue

$139.73 million

Earnings per share (EPS)

$0.40

Data source: US Ecology.

Analysts are looking for earnings of $0.41 per share on revenue of $122.16 million, representing year-over-year earnings growth of 2.5% on a revenue contraction of 12.6%. It's worth knowing these estimates, as they often help explain market reactions. However, long-term investors should keep in mind that Wall Street is focused on the short term.

US Ecology only provides full-year guidance, so there are no internal quarterly expectations upon which to gauge results.

Will the base business continue to clean up its results? 

US Ecology's operating results and adjusted EBITDA came in better than it expected in the last two quarters due to strength in its base business and continued improvement in its field and industrial services segment. (The base business, part of the company's environmental services segment, doesn't include its "event business," defined as non-recurring projects of 1,000 tons or more.)

Base business year-over-year revenue increases were as follows for the last two quarters:

  • Q1 2016: 7%
  • Q4 2015: 3%

The company attributed the increases to solid performance in key verticals such as general manufacturing and refining.

A continued widening of this number would be a positive, suggesting that the challenging industrial macroeconomic environment is behind the company. However, investors shouldn't view a number that holds steady or even slightly declines as a negative, as quarterly numbers will always bounce around a bit for various reasons.

Looking ahead

Full-year 2016 guidance reflects the company's belief that 2016 will be a brighter year than 2015. So, we'd like to see a reaffirmation of guidance. It would seem unrealistic at this early stage in the company's still rather nascent bounce back from a tough 2015 to hope for an increase in full-year 2016 guidance. So, it should go without saying that a guidance raise would be an especially huge positive.

Metric

FY 2016 Guidance

Growth (YOY)

Revenue

$502 million-$528 million

(0.4)%-4.8%*

Adjusted EBITDA

$126 million-$132 million

2.8%-7.7%

EPS

$1.80-$1.95

6.5%-15.4%**

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. YOY = year over year.

The bottom line

Indications last quarter were that market conditions -- and hence, the company's results -- would continue to improve as the year unfolded. Even slight incremental improvements should be viewed as a positive. 

US Ecology has a strong competitive position and a solid economic moat, so its results should continue to improve in step with market conditions.  

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Beth McKenna has no position in any stocks mentioned. The Motley Fool recommends US 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.