Waste Management and Covanta Holding Corp. each reported fourth quarter and year-end results, with both firms posting healthy year-over-year gains in several metrics.
Waste Management’s Big Year
Waste Management’s revenues for the fourth quarter of 2016 were $3.46 billion, a 6.6 percent increase over the $3.25 billion for the same 2015 period. For the full year 2016, the company reported revenues of $13.6 billion, compared with $13.0 billion for 2015.
For the quarter, the company said the increase was driven by positive yield and volume in its collection and disposal business of $118 million. Acquisitions, net of divestitures, contributed $45 million of revenue growth to the fourth quarter. Recycling yield and volume also increased $51 million.
For the full year 2016, overall revenue increased by 5.0 percent, or $648 million. The revenue increase was driven by positive yield and volume in the Company’s collection and disposal business of $445 million. Acquisitions, net of divestitures, contributed $238 million of revenue growth to the year. Recycling yield and volume also increased $60 million.
“In 2016 we continued our focus on core price, disciplined volume growth, and cost control,” Waste Management President and CEO Jim Fish said in a conference call with investors. “The fourth quarter saw internal revenue growth from each of yield and total company volume achieve 2.0 percent or greater. This is the first time we have achieved this result in over a decade. This revenue growth drove significant increases in net cash provided by operating activities and free cash flow. We will maintain our focus on driving core price, growing high margin volumes, and controlling costs, positioning us for strong earnings and cash generation in 2017.”
Core price, which consists of price increases net of rollbacks and fees, other than the Company’s fuel surcharge, was 5.1 percent, up from 4.3 percent in the fourth quarter of 2015. For the full year, core price was 5.0 percent, up from 4.2 percent for the full year of 2015.
Internal revenue growth from yield for collection and disposal operations was 2.1 percent in the fourth quarter and 2.4 percent for the full year.
Traditional solid waste internal revenue growth from volume was 1.7% in the fourth quarter of 2016, an improvement of 170 basis points versus the fourth quarter of 2015. For the full year 2016, traditional solid waste internal revenue growth from volume was 1.6 percent, an improvement of 210 basis points versus the full year of 2015. Total company internal revenue growth from volume, which includes recycling and renewable energy, was 2.0 percent in the fourth quarter, an improvement of 290 basis points from the fourth quarter of 2015. Total company volume was 1.4 percent for the full year 2016, an improvement of 300 basis points compared to the full year 2015.
Average recycling commodity prices at the company’s recycling facilities were approximately 31.6 percent higher in the fourth quarter of 2016 compared with the prior year period. Recycling volumes improved 2.4 percent in the fourth quarter.
For the full year, average recycling commodity prices at the company’s recycling facilities were approximately 8.6 percent higher and volumes increased 0.8 percent.
Net income for the quarter was $335 million, or $0.75 per diluted share, compared with net income of $273 million, or $0.61 per diluted share, for the fourth quarter of 2015. On an as-adjusted basis, net income was $320 million, or $0.71 per diluted share, in the fourth quarter of 2015.
Income from operations in the fourth quarter of 2016 was $617 million compared to $502 million, or $575 million on an as-adjusted basis, for the same 2015 period. For the full year 2016, income from operations was $2.30 billion, or $2.41 billion on an as-adjusted basis, compared to $2.05 billion, or $2.19 billion on an as-adjusted basis, for 2015.
Operating EBITDA was $930 million in the fourth quarter of 2016 compared to $803 million, or $876 million on an as-adjusted basis, in the fourth quarter of 2015. For the full year of 2016, operating EBITDA was $3.60 billion, or $3.71 billion on an as-adjusted basis, compared to $3.29 billion in 2015, or $3.43 billion on an as-adjusted basis.
Free cash flow was $387 million in the fourth quarter of 2016 compared to $188 million in the fourth quarter of 2015. Free cash flow for the full year was $1.66 billion compared to $1.41 billion in 2015, an increase of 18 percent.
Looking ahead to 2017, the company expects core price to be 4.0 percent or greater for the year. Internal revenue growth from yield on the collection and disposal business is expected to be approximately 2.0 percent. Internal revenue growth from volume is expected to be between 1.2 percent and 1.6 percent.
Covanta Closes 2016 with Strong Quarter
Covanta posted a total revenue increase of $54 million in 2016 to $1.699 billion from $1.645 billion in 2015. Overall, higher waste and service revenue more than offset a decline in energy revenue, according to the company.
"I am very pleased with our performance in the fourth quarter, which led to solid full year results," Covanta President and CEO Stephen J. Jones said in a statement. "Record profiled waste and strong markets helped drive our performance on the waste revenue line, and the team continues to execute on our other organic growth initiatives, including metal recovery, which also hit a record in 2016, and Continuous Improvement. While we expect modest Adjusted EBITDA growth in 2017, the significant progress on the construction of our Dublin facility, which is scheduled for commercial operations by the start of the fourth quarter, coupled with the benefits from our ongoing organic growth initiatives, position us for stronger results and more meaningful free cash flow growth in 2018 and beyond."
Waste and service revenue grew by $35 million, with increases including waste-to-energy processing of $26 million (2.8 percent), with price and volume improvements of $24 million and $2 million, respectively.
Covanta also posted environmental services revenue of $12 million as a result of increased activity at previously acquired businesses. It also had higher municipal services revenue, primarily relating to the New York City MTS contract and transfer station volumes.
Energy revenue decreased by $5 million, resulting from lower production volume at its waste-to-energy facilities.
Recycled metals revenue decreased by $1 million, driven by lower market prices, partially offset by higher volume.
Other revenue increased by $21 million due to higher construction revenue.
Contract transitions increased revenue by $16 million, with increased share of energy revenue following service fee to tip fee contract transitions partially offset by the expiration of certain long-term energy contracts.
Adjusted EBITDA declined by $18 million on a year-over-year basis to $410 million.
Free Cash Flow increased by $25 million to $172 million, primarily as a result of a meaningful working capital benefit.