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Solid Waste Firms Post Strong Third Quarter Metrics

A key theme across the board has been strong core price and volume growth across business lines.

Republic Services, Waste Connections and Covanta Energy Corp. all reported third quarter earnings. (Waste Management has also reported its results.) A key theme across the board has been strong core price and volume growth across business lines. That’s translated into healthy revenues, free cash flow and net income.

In addition, firms reported some improvement in recycling lines, primarily driven by improving commodity prices on fiber.

For example, excluding glass and organics, Republic reported average commodity prices increased 12 percent to $133 per ton in the third quarter from $119 per ton in the prior year. And the cost of goods sold was up 13 percent from an increase in rebates paid for recycled commodities.

Two other publicly-traded haulers, Casella Waste Systems and Advanced Disposal, are set to report their results next week.

On Thursday, Republic Services reported net income of $85.6 million in the third quarter versus $215.0 million in 2015. Excluding certain expenses, net income for the three-months ended Sept. 30, 2016, was $212.6 million versus $184.7 million a year ago. A majority of the expenses excluded from the 2016 adjusted EPS relate to the tender offer for certain outstanding bonds, which closed in early July.

Republic Services President and CEO Donald W. Slager discussed the firm’s results during a conference call with investors Thursday evening.

“Average yield improved sequentially even with a step-down in CPI-based pricing,” Slager said. “We continue to see relatively higher average yield in our small container commercial and large container businesses. A majority of these customers are in open markets, where we can leverage increases in demand for service, our enhanced product offerings and our digital platform.”

Other highlights included revenue growth from average yield of 2.1 percent and volumes increasing 0.6 percent. Core price increased revenue by 3.2 percent, which consisted of 4.3 percent in the open market and 1.4 percent in the restricted portion of the business.

Volumes increased 30 basis points in the small container business, and 1 percent in the large container business. Volumes in the residential business declined 1.1 percent.

The post-collection business made up of third-party landfill and transfer station volumes increased 2.5 percent. Landfill volumes consisted of growth in MSW of 1.9 percent, and C&D of 13.4 percent, partially offset by decline in special waste of 3.6 percent.

Republic also continued its initiatives focused on creating a better customer experiences. It increased the number of customers that do business with Republic digitally to 1.7 million. Its expanded ecommerce capabilities to include the small-container commercial business.

In terms of its fleet, 18 percent of the Republic’s vehicles now operate on natural gas, up from 16 percent in the prior year. Meanwhile, 74 percent of the residential fleet is automated, up from 71 percent in the prior year.

Post-merger results

Waste Connections, meanwhile, announced results that included revenue from the Progressive Waste acquisition. Overall, the firm posted revenue of $1.085 billion, up from $547.9 million in 2015.  Operating income, which included $20.3 million of items primarily related to the Progressive Waste acquisition, was $158.7 million, as compared to a loss of $375.2 million in the third quarter of 2015, which included net impairment charges of approximately $493.4 million associated with the company's E&P segment.

Net income attributable to Waste Connections in the third quarter was $88.6 million. In the year ago period, the company reported net loss attributable to Waste Connections of $257.0 million.

The company’s overall volume growth was driven by double digit increases in MSW disposal volumes along with higher commercial collection and roll-off activity. During a call with investors, the firm reported that MSW tons increased 11 percent in the third quarter. And three-quarters of the firm’s landfills reported higher MSW tons.

Special waste and C&D tonnage were each down 6 percent, primarily due to a decline in special waste activity in Minnesota and tough C&D comps at two landfills.

On a same-store basis, Waste Connection’s commercial collection revenue increased almost 7 percent year-over-year and roll-off pulls per day increased about 4 percent.

On the recycling front, the company posted 15 percent year-over-year due primarily to higher commodity values for fiber. Prices for old corrugated containers, averaged about $123 per ton, up 11 percent from the year ago, and up 18 percent from the second quarter.

During a conference call with investors, Chairman and CEO Ron Mittelstaedt provided addition perspective on the firm’s results and the early stages of the post-merger integration.

“We believe the volume growth environment remains in the range of about 1 percent to 2 percent under current economic conditions,” Mittelstaedt said. “ They could run a little above that range in some period due to the timing of special waste activity or items within our prior-year comparison. As we consistently communicated, we tried to be conservative in guiding volume growth particularly given the 2016 is the fourth year of strong MSW volumes. The deeper we get into this recovery, the tougher we expect the comparisons to be, unless they economy shifts into higher gear, which with housing starts still running around 1 million units, we're not yet seeing or expecting.”

In terms of Progressive, Mittelstaedt reported that safety related incidents were trending at 40 percent lower than preacquisition levels.

“To put that in perspective, in September and October as a total company we had fewer incidents than Progressive Waste has a standalone company in many months throughout 2015,” Mittelstaedt  said. “Pricing improvement initiatives within Progressive's footprint are also well underway, resulting in price increases within these markets, expected to range between 2.5 percent and 3 percent in Q4, up from less than 1 percent in Q1.”

Covanta pushes ahead

For the three months ended September 30, total revenue for Covanta decreased by $1 million to $421 million from $422 million in Q3 2015.  An increase in waste and service revenue was offset by decreases in metals and energy revenue.

"Our waste business continues to grow, benefiting from strong market conditions and demand for our environmental solutions offerings," Stephen J. Jones, Covanta's President and CEO, said in a statement.  "Overall, operating performance is on track with the plan we laid out in the beginning of the year.  In addition, construction of the Dublin EfW facility is now over 75 percent complete, and this quarter we signed the remaining waste supply contracts to secure 90 percent of the facility's capacity.  We look forward to moving into commercial operations by the end of Q3 2017."

Covanta reported that waste and service revenue increased by $8 million, driven by price and volume improvements of $6 million and $2 million, respectively. Meanwhile its energy revenue increased by $1 million, with higher prices and capacity revenue offsetting lower production volume. But recycled metals revenue decreased by $3 million, primarily driven by lower market prices.

Contract transitions resulted in an increase of $4 million due to additional energy revenue sharing partially offset by the expiration of an above-market power purchase agreement.

All other revenue decreased by $15 million on a consolidated basis. 

During a call with investors, CEO Stephen J. Jones discussed the firm’s results. The company recently extended two service agreements (in Hunstville, Ala., and Indianapolis) while a third (Hennepin, Minn.) elected to not extend beyond 2018.

“Our North America EfW same-store volume was up versus the same quarter in 2015 and pricing continued to move higher in the quarter as well,” Jones said. “The net result was a 3.4 percent increase in North America EfW same-store waste and service revenue. … [T]he Northeast waste market continues to remain strong. We saw improvement in spot pricing there year-over-year. Overall, average contracted waste price continues to escalate at about 1 percent, in line with our expectations at the start of the year.”

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