Waste and recycling services provider Quest Resource (NASDAQ:QRHC) fell short of analysts' expectations in Q2 CY2024, with revenue down 1.8% year on year to $73.15 million. It made a GAAP loss of $0.07 per share, down from its loss of $0.04 per share in the same quarter last year.
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Quest Resource (QRHC) Q2 CY2024 Highlights:
- Revenue: $73.15 million vs analyst estimates of $76.7 million (4.6% miss)
- EPS: -$0.07 vs analyst estimates of -$0.01 (-$0.06 miss)
- Gross Margin (GAAP): 18.5%, in line with the same quarter last year
- EBITDA Margin: 7%, up from 3% in the same quarter last year
- Market Capitalization: $163.7 million
“I am incredibly proud of the positive reaction and feedback we have received from clients we are onboarding, one of which has already committed to expanding our engagement with additional services. It is great to see that investments in our platform to ensure seamless implementation combined with outstanding client service are resulting in significant value add for our clients. We believe we continue to differentiate Quest from the competition and are further solidifying our position as the waste and recycling services provider of choice,” said S. Ray Hatch, President and Chief Executive Officer of Quest.
Recycling corporate waste to help companies be more sustainable, Quest Resource (NASDAQ:QRHC) is a provider of waste and recycling services.
Waste Management
Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.
Sales Growth
Examining a company's long-term performance can provide clues about its business quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, Quest Resource grew its sales at an incredible 22.7% compounded annual growth rate. This shows it expanded quickly, a useful starting point for our analysis. 
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Quest Resource's annualized revenue growth of 10.9% over the last two years is below its five-year trend, but we still think the results were good and suggest demand was strong.
This quarter, Quest Resource missed Wall Street's estimates and reported a rather uninspiring 1.8% year-on-year revenue decline, generating $73.15 million of revenue. Looking ahead, Wall Street expects sales to grow 14.7% over the next 12 months, an acceleration from this quarter.
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Operating Margin
Operating margin is a key measure of profitability. Think of it as net income–the bottom line–excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.
Quest Resource was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 1.9%. This result isn't too surprising given its low gross margin as a starting point.
On the bright side, Quest Resource's annual operating margin rose by 1.4 percentage points over the last five years, as its sales growth gave it operating leverage
In Q2, Quest Resource generated an operating profit margin of 2.4%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Quest Resource's earnings losses deepened over the last five years as its EPS dropped 138% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Quest Resource's low margin of safety could leave its stock price susceptible to large downswings.
In Q2, Quest Resource reported EPS at negative $0.07, down from negative $0.04 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street is optimistic. Analysts are projecting Quest Resource's EPS of negative $0.32 in the last year to reach break even.
Key Takeaways from Quest Resource's Q2 Results
We struggled to find many strong positives in these results. Its revenue unfortunately missed and its EPS fell short of Wall Street's estimates. Adjusted EBITDA did come in in line with expectations, which is a bit of a relief. Overall, this was a mixed but overall mediocre quarter for Quest Resource. The stock traded down 1.1% to $8.25 immediately after reporting.
Quest Resource may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.