Environmental services provider Montrose (NYSE:MEG) beat Wall Street’s revenue expectations in Q4 CY2024, with sales up 14.1% year on year to $189.1 million. The company expects the full year’s revenue to be around $760 million, close to analysts’ estimates. Its non-GAAP profit of $0.29 per share was significantly above analysts’ consensus estimates.
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Montrose (MEG) Q4 CY2024 Highlights:
- Revenue: $189.1 million vs analyst estimates of $187.8 million (14.1% year-on-year growth, 0.6% beat)
- Adjusted EPS: $0.29 vs analyst estimates of $0.14 (significant beat)
- Adjusted EBITDA: $27.24 million vs analyst estimates of $26.94 million (14.4% margin, 1.1% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $760 million at the midpoint, in line with analyst expectations and implying 9.1% growth (vs 11.9% in FY2024)
- EBITDA guidance for the upcoming financial year 2025 is $104.5 million at the midpoint, in line with analyst expectations
- Operating Margin: -12.1%, down from -5.4% in the same quarter last year
- Free Cash Flow Margin: 14.4%, up from 6% in the same quarter last year
- Market Capitalization: $595.1 million
Montrose Chief Executive Officer and Director, Vijay Manthripragada, commented, "We are pleased to report another record year and record quarter of financial and operating performance driven by continued demand for our uniquely integrated environmental expertise and technology. Our continued track record of strong organic growth primarily due to cross-selling success and strong customer retention, our increased margins due to improved operating efficiencies, our lower leverage due to balance sheet strength, our continued innovation success with developing patented technologies, and our successful integration of recent acquisitions, all continue to validate the strategic advantages of our business model. Our end-market and service diversification and our focus on simultaneously supporting economic value creation and environmental stewardship continues to resonate. We believe the new US administration and the expected political and policy shifts in our key markets will create more tailwinds than headwinds given our private sector focus and given potential increases in demand for our services due to onshoring and increased energy and industrial production."
Company Overview
Founded to protect a tree-lined two-lane road, Montrose (NYSE:MEG) provides air quality monitoring, environmental laboratory testing, compliance, and environmental consulting 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
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Montrose’s sales grew at an incredible 24.4% compounded annual growth rate over the last five years. Its growth beat the average industrials company and shows its offerings resonate with customers, a helpful starting point for our analysis.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Montrose’s annualized revenue growth of 13.1% 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, Montrose reported year-on-year revenue growth of 14.1%, and its $189.1 million of revenue exceeded Wall Street’s estimates by 0.6%.
Looking ahead, sell-side analysts expect revenue to grow 9.4% over the next 12 months, a deceleration versus the last two years. Despite the slowdown, this projection is commendable and suggests the market is baking in success for its products and services.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.
Montrose’s high expenses have contributed to an average operating margin of negative 4.6% over the last five years. Unprofitable industrials companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.
On the plus side, Montrose’s operating margin rose by 1.7 percentage points over the last five years, as its sales growth gave it operating leverage. Still, it will take much more for the company to reach long-term profitability.
This quarter, Montrose generated a negative 12.1% operating margin.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in 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.
Montrose’s full-year EPS flipped from negative to positive over the last five years. This is a good sign and shows it’s at an inflection point.
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
Montrose’s EPS grew at an astounding 52.6% compounded annual growth rate over the last two years, higher than its 13.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
In Q4, Montrose reported EPS at $0.29, up from $0.17 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Montrose’s full-year EPS of $0.84 to stay about the same.
Key Takeaways from Montrose’s Q4 Results
We were impressed by how significantly Montrose blew past analysts’ EPS expectations this quarter. We were also happy its revenue and EBITDA narrowly outperformed Wall Street’s estimates. Overall, this quarter had some key positives. The stock remained flat at $17.60 immediately after reporting.
Sure, Montrose had a solid quarter, but if we look at the bigger picture, is this stock a buy? 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.
