US Ecology's Earnings Get a Boost From a Strong Industrial Sector

US Ecology (ECOL) reported fourth-quarter and full-year 2017 results after market close on Thursday. 

Strength in the overall industrial sector provided a tailwind for the environmental services company's quarterly results -- a welcome change from the headwind caused by a sluggish industrial sector over much of the last year and a half. Last quarter, while business conditions solidly improved, the company's results were adversely impacted by two hurricanes and other unanticipated factors.

US Ecology's results: The raw numbers

DATA SOURCE: US ECOLOGY. GAAP = GENERALLY ACCEPTED ACCOUNTING PRINCIPLES.

Operating income includes an $8.9 million impairment charge associated with the company's airport recovery business. Excluding this charge, operating income grew 56% over the year-ago quarter. Adjusted EPS excludes a favorable tax reform impact of $23.8 million, or $1.08 per share, and the impact of other one-time items.

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 $0.62 on revenue of $132.1 million. So the company beat both expectations.

For 2017, revenue grew 6% to $504 million and adjusted EPS rose 13% to $1.72. The latter came in at the high end of US Ecology's guidance range of $1.60 to $1.72, which was lowered last quarter from the previous range of $1.69 to $1.93.

Image source: US Ecology.

What happened with US Ecology in the quarter?

The two segments performed as follows:

Data source: US Ecology.

Within environmental services (ES), treatment and disposal (T&D) revenue increased 11% and transportation revenue climbed 15% over the year-ago period. Breaking out the ES business another way, base business' revenue grew 11% and event business' revenue soared 36% year over year. (The event business includes nonrecurring projects of 1,000 tons or more.) 

Field and industrial services growth in revenue and gross profit reflects stronger overall market conditions. 

What management had to say

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

The underlying strength in the industrial economy and within many of our customers' operations helped drive volumes and led to solid performance in the fourth quarter. Our Base Business was stronger than expected, growing 11% over the fourth quarter last year. Contributing to this growth was strength in the Gulf Coast that rebounded from the hurricane that affected the region in the third quarter. Many of our customers that were affected by Hurricane Harvey saw business return to normal levels in the fourth quarter, driving higher volumes of Base Business into out Texas facility. Even after accounting for volumes that were likely rolled over from the third quarter, we believe Base Business increased approximately 8% in the fourth quarter of 2017, a healthy gain over the fourth quarter of 2016 and a positive sign as we look ahead to 2018. Event Business growth was also strong in the fourth quarter last year. Our Field and Industrial Services segment also performed well, posting 14% revenue growth over the same quarter last year. 

Looking ahead

For 2018, US Ecology expects to deliver EPS of between $2.15 and $2.34, which includes approximately $0.26 per share attributable to the lower U.S. tax rate. At the midpoint, this outlook translates to 31% growth over 2017, or 15% growth if we exclude the benefit from the lower tax rate. This guidance is better than the $2.07 EPS that Wall Street was projecting going into earnings.