Toronto-based Waste Connections Inc. ended Q1 2019 on a high note, with revenues of $1.245 billion, up from $1.140 billion in 2018. The company’s operating income, which included $16.1 million in impairments and other operating items, was $184.9 million, compared to $188.7 million in Q1 2018.
“We are extremely pleased with the strong start to the year which, along with expected sequential improvement in volume growth and recently completed acquisitions, positions us well for the remainder of 2019,” said Waste Connections President Worthing F. Jackman in a statement. “Continuing strength in solid waste price growth once again drove underlying margin expansion and better-than-expected financial results in the quarter, enabling us to overcome weather-related impacts across multiple markets and further declines in recycled commodity values. In addition, adjusted free cash flow of almost 20 percent of revenue in the quarter puts us solidly on track to achieve our full year outlook of $950 million.”
“Year-to-date, we’ve signed or closed acquisitions with total annualized revenue of approximately $100 million, putting us on pace to potentially deliver another outsized year of acquisition activity,” added Jackman. “These acquisitions include new market entries in Colorado, Illinois and Iowa and tuck-ins in Colorado, Montana, Nebraska, New York and Wyoming. Our strong financial profile and free cash flow generation provide us the flexibility to fund continuing outsized acquisition activity while increasing the return of capital to shareholders.”
Ronald J. Mittelstaedt, chairman and CEO of Waste Connections, was once again not on the firm’s quarterly earnings call with investors due to a temporary leave of absence. Jackman and Mary Anne Whitney, senior vice president and chief financial officer, led the call.
Here’s a breakdown of the firm’s earnings report:
- Core price grew 4.8 percent in the U.S. and 6.4 percent in Canada. Volume decreased 1 percent in the U.S. and 2.2 percent in Canada. Recycling decreased 0.5 percent in the U.S. and 0.6 percent in Canada.
- Solid waste collection accounted for 71.4 percent of reported revenue ($889.2 million vs. $807.2 million in 2018). Solid waste disposal and transfer accounted for 19.3 percent ($240.7 million vs. $221.4 million in 2018). Solid waste recycling ($19.3 million), E&P waste treatment, recover and disposal ($63.1 million) and intermodal and other ($32.3 million) accounted for the remainder.
- Commercial collection revenue increased approximately 5.5 percent, mostly due to price increases. Roll-off revenue increased approximately 3 percent.
- Recycling revenue, excluding acquisitions, was about $17 million in the first quarter of 2019. This is down approximately 25 percent, which was worse than expected. There was continued deterioration in pricing for old corrugated containers (OCC) and mixed paper. OCC prices in Q1 averaged about $77 per ton, down 24 percent from the prior year period. Mixed paper revenue declined approximately 65 percent year-over-year, currently averaging about a negative $7 per ton.
- Net income attributable to Waste Connections in the first quarter of 2019 was $125.6 million, or $0.48 per share on a diluted basis of 264.3 million shares. In the year ago period, the company reported net income attributable to Waste Connections of $124.9 million, or $0.47 per share on a diluted basis of 264.6 million shares.
- Adjusted net income attributable to Waste Connections in the first quarter of 2019 was $163.9 million, or $0.62 per share, versus $148.6 million, or $0.56 per share, in the prior year period.
- Adjusted EBITDA in Q1 2019 was $385.7 million and 31 percent of revenue, compared to adjusted EBITDA of $356.9 million and 31.3 percent of revenue in the prior year period.
- The firm also reported adjusted free cash flow of $246.3 million compared with $220.2 million in the first quarter of 2018.
- When asked about the mergers and acquisition playing field, specifically Waste Management’s recent announcement about acquiring Advanced Disposal Services, Jackman stated: “Nothing prevents us from writing checks of that size and nothing would prevent us from doing a large transaction … Obviously, every acquirer sees something different in a target, and Waste Management has their call next, so I wouldn’t want to weigh in on how they view Advanced. We’ve had our own view of that acquisition over the years, and we benchmarked it next to the Progressive acquisition we completed in 2016, and the metrics are different as we see them … As we’ve always said, it’s not just the markets you enter, but it’s the price you pay to get into them. From our standpoint, we wish Waste Management the best, and this is not something we believe we missed.”
- Revenue for Q2 2019 is estimated to be approximately $1.360 billion. Waste Connections expects price growth in solid waste in Q2 2019 to be in the range of 4.5 to 5 percent, with volume in the range of flat to up 50 basis points. Adjusted EBITDA is estimated to be approximately 31.9 percent of revenue, or about $434 million.