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New Covanta CEO Details Strategic Review While Reporting 4Q Earnings

Covanta covantafairfaxfeat.png

Today Covanta (CVA) reported on its fourth quarter earnings. Covanta President and CEO Michael Ranger, who joined the company three months ago replacing Stephen Jones, spoke to the company's new strategic review announcing that he and the board believes some "assets of the company are undervalued", that "the profitability of the business is not uniform" and that the company is "testing the market for some parts of the business".

Ranger also mentioned resizing the business to "exit less profitable operations" to reduce risk and improve cash flow. Also, the company is reviewing cost and capital allocation, reducing leverage noting that there was an overhang on their equity value. The company anticipates the strategic review will be made in the coming months, with initial announcements being made by the middle of 2021. Aside from the strategic review, Ranger spoke to strong full year results, which fell within the company's pandemic expectations. 

Here’s a quick look at the 4Q 2020 and 2020 full year financials:

  • Revenue for 4Q came in at $491 million, rounding 2020 at $1,904 million, representing an increase of 1.8% from 2019
  • Net Income for 4Q the company reported a loss of $28 million
  • Adjusted EBITDA  and came in at $424 million for 2020, representing a 0.9% decrease from 2019   
  • Free Cash Flow came in at $95 million for 2020, representing a 32.1% decrease from 2019
  • With a new CEO at the helm, Covanta has embarked on a strategic review

Reviewing 2020, the company reported a quarterly loss of $28 million in the fourth quarter rounding out an Adjusted EBITDA of $424 million for 2020 (a 0.9% decrease from 2019) and a Free Cash Flow of $95 million for 2020 (a 32.1% decrease from 2019).

The company noted significant reduction in waste management volumes and prices bottoming in the second quarter, which has subsequently rebounded.

The company also announced that lower overhead costs resulting from its cost-savings program begun at the beginning of the pandemic added $3 million to the bottom line which was partially offset by cash flow from working capital. 

On the expense side, the company's CFO Brad Helgeson noted that while its cost savings plan produced $25 million in savings in 2020 largely through temporary salary reductions and furloughs, these were noted to be one-time events. Amid adverse claims experience and low interest rates, the CFO expects increase in property and casualty insurance costs of $10 million in 2021. The CFO also noted an expected $10 to $30 million headwind from working capital. 

The call highlighted several projects with strong pricing and notable construction projects in the UK with no material pandemic impacts. New Covanta Europe President Owen Michaelson is continuing to lead these efforts.

Other operational and business highlights included new sustainability solutions such as reduced waste to landfills, renewable electricity, and metal recovery efforts. The company also noted these efforts have led to a reduction of 19 million metric tons of greenhouse gases. 

The company also noted efforts to ensure the long-term viability of their fleet albeit forecasting that maintenance capital will be lower in 2021.

In addition, the company noted lower prices for energy (which will remain hedged) and metals, which have been increasing demand. 

With the company's dividend policy change in April, the company experienced a $40 million of reduction in dividends in 2020 and the company expects to have $40 million to $80 million for debt reduction in future.  

 

 

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