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US Ecology's Earnings Hurt by Hurricanes and Other Unanticipated Factors

US Ecology (NASDAQ: ECOL) reported third-quarter 2017 results after the market closed on Oct. 26. Business conditions are improving, but the environmental services company's results were hurt by hurricanes Harvey and Irma, a charge related to a property tax assessment, and some event business pushed back. 

The market sent US Ecology shares tumbling to a closing loss of 10.4% on Friday, which we can attribute to the weaker-than-expected results and the ratcheting back of full-year 2017 guidance. 

US Ecology's results: The raw numbers

Metric

Q3 2017

Q3 2016

Year-Over-Year Change

Revenue

$134.1 million

$124.8 million

7.5%

Operating income

$15.3 million

$20.9 million

(26.8%) 

Net income

$8.4 million

$10.1 million

(16.8%) 

GAAP earnings per share

$0.38

$0.46

(17.4%) 

Adjusted EPS

$0.37

$0.47

(21.3%) 

Data source: US Ecology. GAAP = generally accepted accounting principles.

For context -- though long-term investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts were looking for US Ecology to turn in adjusted EPS of $0.60 on revenue of $135.5 million. So the company fell short of both expectations.

Image source: Getty Images.

What happened with US Ecology in the quarter?

Here are how the two segments performed:

Segment

Q3 Revenue 

Year-Over-Year Change

Q3 Gross Profit

Year-Over-Year Change

Environmental services 

$97.7 million

11%

$33.1 million

(1.5%)

Field and industrial services

$36.4 million

(1.6%) 

$4.6 million

(19.3%) 

Total

$134.1 million

7.5%  $37.7 million  (4.3%) 

Data source: US Ecology.

Within environmental services (ES), treatment and disposal (T&D) revenue rose 9% and transportation revenue jumped 21% year over year. Slicing and dicing the ES business another way, base business' revenue grew about 3%, adjusting for the impacts of Hurricane Harvey, while event business' revenue soared 40% over the year-ago quarter. (The event business includes non-recurring projects of 1,000 tons or more.) The decrease in gross profit was due to a decline in T&D gross margin, driven primarily by a less favorable service mix and incremental costs associated with Hurricane Harvey that affected US Ecology's Robstown, Texas, operation.

Field and industrial services revenue result was negatively affected by the expiration of a contract that wasn't renewed in late 2016 and softer overall market conditions for industrial and remediation services. The decline in gross profit was due to lower route density in the company's small-quantity generation services as it rebuilds and replaces business it has lost in the prior year, and a less profitable mix in its industrial service and remediation business.

What management had to say

Here's what CEO Jeff Feeler had to say in the press release:

Overall business conditions continue to improve; however, revenue and costs from two hurricanes as well as other unanticipated charges have offset a number of very positive trends we are seeing in our business and resulted in the third quarter not materializing as expected. In our Environmental Services segment, we experienced growth of approximately 3% in Base Business, adjusting for the impacts of Hurricane Harvey, and our Event Business experienced substantial improvement, growing 40% over the same quarter last year. Though Event Business growth was strong, this was lower than we expected and volume has continued to be pushed out, with some volume now expected to shift into the first quarter of 2018. I continue to be pleased with the progress in our business and the investments we are making to position ourselves for sustained growth.

CFO Eric Gerratt expounded on the factors that negatively affected the company's business in the quarter:

During the quarter we experienced lower revenue and higher expenses in our business as a result of Hurricanes Harvey and Irma. We were fortunate that our team members were safe and that our Robstown, Texas, and Tampa, Florida, facilities didn't suffer any major damage. However, we did shut down operations for several days and continue to see delays in shipments in the Texas market. In addition to lower revenue, we incurred over $1 million in direct hurricane-related expenses in the third quarter, primarily related to storm water management at our Texas facility. We also absorbed a one-time $1.1 million charge related to a property tax assessment that we are in the process of appealing.  

Looking ahead

US Ecology has reached an agreement with its insurance carriers and  expects to receive $2.6 million of business interruption proceeds related to its treatment facility that suffered severe wind damage in the first quarter. It expects to record the proceeds in the fourth quarter.

Because of its worse-than-expected third quarter, the company lowered its previously issued full-year 2017 outlook as follows: 

Metric

2017 Guidance

Projected Year-Over-Year Change

Adjusted EPS

$1.60 to $1.72 (Previous: $1.69 to $1.93) 

4.6% to 12.4 %

Data source: US Ecology. 

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Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends U.S. Ecology. The Motley Fool has a disclosure policy.