Lower recyclables prices offset Casella’s revenue growth for Q4 2018

Casella Waste Systems Inc., a regional solid waste, recycling and resource management services company based in Rutland, Vermont, reports revenue of $174.7 million for the fourth quarter of 2018, ended Dec. 31, which is an increase of $23.5 million, or 15.5 percent, from the same period in 2017. Yearly revenue was $660.7 million, which is $61.4 million, or 10.2 percent, greater than in 2017.

The company says its overall solid waste pricing for the quarter was up 4.5 percent, driven by strong collection pricing, up 5.6 percent, and robust landfill pricing, up 3.7 percent, from the same period in 2017.

Casella posted a net loss of $13.7 million for the quarter versus net income of $20 million for the same period in 2017. Net income was $6.4 million for the year versus a net loss of $21.8 million in 2017.

Adjusted net income attributable to common stockholders totaled $4.1 million for the quarter versus $4.6 million for the same period in 2017 and $27.2 million for the year versus $28.7 million in 2017.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) totaled $33.8 million for the quarter, up $3.6 million, or 12 percent, from the same period in 2017. Adjusted EBITDA totaled $138. million for 2018, up $9 million, or 7 percent, from 2017.

“We had a strong operational quarter and a great year as we continued to execute well against our key strategies as part of our 2021 plan,” says John W. Casella, chairman and CEO of Casella Waste Systems. “We remain focused on driving cash flow growth by increasing landfill returns, improving collection profitability, creating incremental value through resource solutions, using technology to drive profitable growth and efficiencies and efficiently allocating capital for strategic growth.”

He adds that the company purchased 10 businesses with roughly $77 million in annualized revenues in 2018. “We have built strong process and discipline in our acquisition approach, and we plan to remain focused on acquiring well-run businesses in strategic markets that will drive additional internalization to our landfills and leverage operating synergies,” Casella says. “We expect revenue growth of approximately 5.5 percent in 2019 from the roll-over impact of acquisitions completed in 2018. Further, our acquisition pipeline remains robust entering 2019, and we believe that we are well-positioned to again surpass our target to acquire or develop $20 million to $40 million of annualized revenues in 2019.”

Casella says strong performances from the company’s integrated solid waste, customer solutions and organics operations “more than offset the significant commodity pricing headwinds in our recycling business.” He adds, “Our disciplined solid waste pricing programs continue to drive significant value,” despite flat solid waste volumes year over year in the fourth quarter. However, he adds that excluding the effects of a fire-related business interruption at a company transfer station, that figure would have shown a 0.5 percent increase.  

“Our team has done a great job over the last several years working to off-take risk across our business, including recycling commodity pricing risk,” Casella says. “As recycled paper and cardboard commodity prices stabilized over the last six months, our trailing SRA (sustainability/recycling adjustment) fee and revenue share contracts, where applied, are now fully recovering lower commodity prices. Despite our average commodity revenue per ton being down roughly 18 percent year over year in the fourth quarter, our efforts to improve our recycling business model, reset pricing on legacy contracts and reduce contamination all contributed to increasing operating income $0.7 million in the recycling business year over year in the fourth quarter.” He adds, “Looking forward to 2019, we expect recycling results to improve further as several third-party recycling processing contracts will reset over the next six months.”

Casella Waste Systems’ fourth quarter included a $15.8 million Southbridge Landfill closure charge, $0.9 million in expenses from acquisition activities and other items and a $1.1 million impairment charge for the company’s investment in RecycleRewards Inc.

Casella says, “Our fiscal year 2019 budget is on track with the fiscal year 2021 strategic plan that we first introduced in August 2017 and reflects continued execution of our key strategies with the goal of driving additional shareholder value. We expect strong growth again in 2019 despite the closure of the Southbridge Landfill in November 2018, driven by continued pricing execution, ramping up of tons at our landfills in New York, the roll-over impacts of acquisitions completed in 2018 and improvements in our recycling business as several legacy recycling contracts reset to further shift commodity risk to our customers and increase processing fees.”

The company says it expects revenue of between $710 million and $725 million (7.5 percent to 9.7 percent growth) in its fiscal year ending Dec. 31, 2019, and net income that ranges from $34 million to $38 million.  

In the solid waste business, Casella predicts revenue growth of between 10 percent and 12 percent in 2019, with price growth of 3.5 percent to 4.5 percent, volume growth from zero to 1 percent, 7.5 percent growth from acquisitions already completed and roughly a 2 percent headwind from the Southbridge Landfill closure.

In the recycling business, overall revenue growth of between 2 percent and 5 percent is expected, mainly driven by slightly higher recycling commodity prices, higher processing fees and neutral to slightly higher volumes, according to the company.