Covanta’s higher waste and commodity prices fuel strong Q3

Covanta Holding Corp., Morristown, New Jersey, reported its Q3 earnings on Oct. 28.

Total revenue for Q3 was $539 million, up $48 million as compared to the prior year period, driven by the following:

• Waste revenue improved by $20 million, with growth in nearly all areas, including:
• Energy revenue increased by $11 million due to higher market prices and increased revenue from renewable energy credits, partially offset by lower wholesale load-serving revenue; and
• Materials sales increased by $21 million, with a $15 million increase in ferrous revenue and a $6 million increase in nonferrous revenue due to higher market prices for metal products.

Total operating expenses were $465 million in the quarter, up $24 million over the prior year period, driven by the following:

• Wages and benefits rose by $9 million, with normalized compensation costs compared to COVID-related cost mitigation actions taken in the third quarter of 2020 and higher accruals for incentive compensation based on financial performance;
• Maintenance expense decreased by $7 million due to the timing of planned outage activity;
• Other operating costs increased by $5 million primarily related to higher insurance premiums, transportation and fuel costs; and
• General and administrative expense rose by $9 million with the cost-mitigation actions taken in the prior year period and increased costs relating to the strategic review impacting the comparison.

Adjusted EBITDA increased by $41 million year over year to $169 million, driven primarily by higher waste and commodity prices and lower maintenance expenses, partially offset by higher costs compared to the prior year cost-mitigation program.

Free cash flow was $60 million in the quarter, up $58 million compared to the prior year. This improvement was driven primarily by higher adjusted EBITDA and reduced maintenance capital expenditures.

The company ended the quarter with $2.4 billion of net debt outstanding and a leverage ratio of 5.2x.

The strong quarterly earnings could be the last released prior to the company's acquisition by EQT Infrastructure. The deal, valued at $5.3 billion, is slated to close in Q4. 

"Our team continues to execute extremely well, with consistent operating performance positioning the company to maximize revenue in a strong market environment that includes upward pressure on disposal prices, growing demand for sustainable waste solutions, and higher values for the commodities we generate," Michael Ranger, president and CEO of Covanta, says. "While we work toward closing our transaction with EQT and preparing for the company's next chapter, we remain focused on our customers and communities, operating safely and efficiently, and leveraging the unique value of our assets."