Despite shrinking recycled commodity prices and harsh winter weather in the Midwest, Waste Connections of Ontario, Canada, has reported better-than-expected earnings for the first quarter of 2019. The company brought in $1.245 billion in revenue in Q1, which is up $1.140 billion from the period the year before and $5 million more than the company’s outlook.
Worthing Jackman, the company’s president, hosted an earnings conference call April 24. Here are some key takeaways from the call:
- Jackman says strong solid waste pricing, improving solid waste volume trends and further growth in exploration and production (E&P) waste activity have put the company on pace for a strong year. “In the first quarter, solid waste price plus volume growth was 4 percent, in line with our guidance,” Jackman said. “That said, total price of 5.2 percent exceeded our high-end of outlook for the quarter and was our highest reported price in over 10 years, up 90 basis points year over year, reflecting the impact of the additional price increases we implemented in mid-2018 in response to accelerating cost pressures and lower recycled commodity values.”
- Waste Connections’ acquisitions, which total nearly $100 million to date, also accounted for some major gains, generating $75.4 million in revenue for the company in Q1. Jackman says acquisitions will continue into this year—the company has already acquired Mountain Waste & Recycling in Aspen, Colorado, and Lewis Clark Recycling & Disposal of Harrisburg, Illinois, this year. “These acquisitions, along with a robust pipeline and active dialogue, put us on pace to deliver another outsized year in acquisition activity,” Jackman says.
- Net income attributable to Waste Connections alone was $125.6 million. Adjusted free cash flow was $246.3 million, or 19.8 percent of revenue.
- Recorded solid waste volume growth in Q1 was -1.2 percent, slightly lower than expected due to harsh winter weather conditions, which resulted in facility closures and delayed special waste projects.
- Recycling revenue decreased was down $5.5 million, or 25 percent, from last quarter alone, “which was worse than expected,” Jackman says. He attributes the decline to deteriorating old corrugated container (OCC) and mixed paper pricing. Jackman says OCC prices averaged $77 per ton Q1 of this year, which was down 24 percent from the year ago period and 17 percent from just last quarter. Jackman says he sees “no impetus for improvement in recycled commodity values at this time.”
- Waste Connections saw a nice boost in its revenue from E&P waste, which is up 14 percent year-over-year, and Jackman expects that to increase as activity at the company’s new E&P waste landfill in Wyoming begins to ramp up.
- The company projects Q2 revenue to be $1.360 billion, anticipating a price growth for solid waste about 5 percent. These figures could vary significantly with economic conditions.