Heritage-Crystal Clean Inc., an Elgin, Illinois-based provider of parts cleaning, used oil re-refining, and hazardous and non-hazardous waste services primarily focused on small and mid-sized customers, recently announced results for the third quarter.
Revenue for the third quarter was $87.1 million compared to $104.8 million for the same quarter of 2019, a decrease of 16.9 percent. Operating margin decreased to 17.8 percent compared to 20.5 percent in the third quarter of 2019 primarily due to decreased revenues as a result of the lower economic activity caused by the COVID-19 pandemic. The company’s third quarter selling, general and administrative (SG&A) expense decreased 12.7 percent to $10.5 million during the third quarter compared to $12 million for the third quarter of 2019. The decrease was mainly driven by lower compensation costs, partially offset by higher severance expense.
Net income attributable to common shareholders for the third quarter was $4 million compared to net income attributable to common shareholders of $6 million in the year earlier quarter. Diluted earnings per share were 17 cents compared to diluted earnings per share of 25 cents in the year-ago quarter.
President and CEO Brian Recatto commented, "While we continue to feel the impact of lower economic activity as a result of the COVID-19 pandemic, we experienced significant improvement in our business during the third quarter compared to the second quarter, which we believe was the low point of this pandemic-driven downturn. The initiatives we put in place to adjust our cost structure during the second quarter helped minimize the negative impact on our profitability during the third quarter."
The company notes that its Environmental Services segment, which includes parts cleaning, containerized waste, vacuum services, antifreeze recycling and field services, brought in revenue of $62.4 million during the quarter compared to $69 million during the third quarter of fiscal year 2019. The 9.5 percent decrease in revenue was primarily due to COVID-19-related volume declines in most of its product and service lines, partially offset by favorable pricing variances in the company’s parts cleaning and containerized waste lines of business. The Environmental Services segment profit before corporate SG&A expenses was $14.6 million compared to $17.8 million in the year-ago quarter, but $6.3 million, or 75 percent higher, compared to the second quarter of 2020.
The company’s Oil Business segment, which includes used oil collection activities, re-refining activities and sales of recycled fuel oil, saw revenues decrease 31.1 percent to $24.7 million in Q3 compared to $35.8 million in the third quarter of fiscal year 2019. During the third quarter, the COVID-19 pandemic continued to drive decreased demand for finished lubricants directly impacting both the demand and price for its base oil products, the company says. However, revenue increased $5 million, or 25.2 percent, quarter-over-quarter as economic activity improved from pandemic lows. In addition, base oil gallons produced in the third quarter increased 76 percent from the second quarter with production being in-line with the third quarter of 2019. Operating margin for the segment fell to 3.4 percent in the third quarter, compared to 10.5 percent in the year-ago-quarter, but increased 31.6 percentage points from the fiscal second quarter.
"As demand for our base oil and the supply of used oil improved incrementally during the third quarter, we were able run our re-refinery efficiently, which yielded vastly improved profitability in our Oil Business segment compared to the second quarter," Recatto says.
COVID-19 update
During the third quarter, the company says it continued executing its pandemic response plan to combat outbreak-induced downturn in its business and protect its employees.
"We are impressed with the efforts of our employees as they continue to provide our customers the excellent service they've come to expect from Heritage-Crystal Clean despite the many personal and professional challenges they face as a result of the pandemic," Recatto says.