Toronto-based Waste Connections Inc. reported its earnings for the third quarter of 2018, which exceeded the company’s outlook. Waste Connections’ revenue for Q3 2018 was $1.281 billion, and its operating income was $232.9 million, up from $218.8 million in Q3 2017. The operating income included $6.9 million in fair value accounting changes associated with certain equity awards and $0.7 million in integration and acquisition-related costs, partially offset by a $2.0 million gain in impairments and other items primarily related to the divestiture of certain assets acquired in the Progressive Waste acquisition.
“Solid waste pricing up 120 basis points year-over-year plus 140 basis points sequential volume improvement drove better-than-expected results in the quarter. This price-led solid waste growth, along with continued strength in E&P waste activity, enabled us to overcome the toughest quarterly comparison for recycled commodity values in the year and certain continuing cost pressures,” said Ronald J. Mittelstaedt, chairman and CEO of Waste Connections, in a statement. “More importantly, adjusted free cash flow remains strong at over $675 million year-to-date, or 18.5 percent of revenue, and 57.8 percent of adjusted EBITDA. Our third quarter performance puts us firmly on track to meet or exceed the increased expectations for the full year we communicated in July.”
During a call with investors, Mittelstaedt also announced that the company recently signed its largest deal year-to-date, and that deal, along with others, will help the company grow and expand into new markets.
“The pace of acquisition activity remains elevated, as we recently signed our largest deal year-to-date, a multimarket collection company with annualized revenue of approximately $175 million, with operations in three states, including two new markets. This acquisition, which is expected to close by year end, along with deals already closed, is expected to bring total acquired annualized revenues to approximately $360 million in 2018,” Mittelstaedt added. “Rollover contribution from these acquisitions plus price-led organic growth already position us for between 8 percent and 10 percent revenue growth and continued margin expansion in 2019, with any additional transactions providing further growth. Moreover, we announced another double-digit percentage increase in the quarterly cash dividend, once again demonstrating that we remain well positioned to increase our return of capital to shareholders while continuing to fund above average acquisition activity.”
Here are some other highlights from the company’s earnings:
- Waste Connections’ solid waste price growth was 4.5 percent.
- Core price grew 3.9 percent in the U.S. and 4.6 percent in Canada.
- Recycling revenue, excluding acquisitions, was about $21 million, down $20 million, or almost 49 percent, year-over-year. This was mainly due to the continued decline in both the value of and demand for recycled fiber, especially mixed paper.
- Prices for old corrugated cardboard in Q3 averaged about $88 per ton, which is down 52 percent from the year ago period and down 7 percent from Q2. Mixed paper revenue, excluding acquisitions, declined almost 75 percent year-over-year and values remain in the $0 to $5 per ton range.
- Solid waste collection accounted for 67.9 percent of reported revenue ($869.3 million vs. $812.9 million in 2017). Solid waste disposal and transfer accounted for 22.7 percent ($291.3 million vs. $259.5 million 2017). Solid waste recycling ($22.4 million), E&P waste treatment, recover and disposal ($64.8 million) and intermodal and other ($33.4 million) accounted for the remainder.
- Net income attributable to Waste Connections in the third quarter was $150.8 million, or $0.57 per share on a diluted basis of 264.4 million shares. In the year ago period, the company reported net income attributable to Waste Connections of $123.2 million, or $0.47 per share on a diluted basis of 264.3 million shares.
- Adjusted net income attributable to Waste Connections in Q3 was $181.9 million, or $0.69 per diluted share, versus $158.1 million, or $0.60 per diluted share, in the prior year period.
- Adjusted EBITDA was $416.8 million, or 32.5 percent of revenue, compared to adjusted EBITDA of $393.4 million in the prior year period.
- The firm also reported year-to-date adjusted free cash flow of $675.7 million, or 18.5 percent of revenue.