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During Q2 Republic Revenues Surge; Covanta Posts EBITDA Gains

Republic's revenue increased 7.5 percent over the prior year, the company's highest level of growth in more than eight years.

Republic Services and Covanta Holding Corp. each reported strong operational results during the second quarter in earnings reports reported yesterday after stock markets had closed.

Republic Sees Strong Growth

Phoenix-based Republic Services posted revenues of $2.53 billion in the second quarter—up from $2.35 billion in the same period a year ago. Total revenue increased 7.5 percent over the prior year, the company's highest level of growth in more than eight years.

The company also reported net income of $202.9 million versus $180.8 million for the comparable 2016 period. Excluding certain gains and expenses, on an adjusted basis, net income for the period was $205.9 million, versus $189.5 million in 2016.

“It’s a broad-based recovery. It’s across all lines. It’s across all areas of the business. … I’m pumped,” Republic President and CEO Donald Slager said during a conference call with investors.

MSW volume growth did lag some of the other waste categories, but Slager explained that it fit with the overall shape of the recovery in the sector.

“We’ve always said we’re in a slow growth business,” he said. “It depends on population growth, and housing formation. Those dynamics are consistent and strong. But we’re only at 1.2 million in terms of household formation. There is still room to grow as that gets back to a new norm.”

Slager also said the company was pleased with its retention levels for drivers and technicians.

“Especially in a time with construction jobs growing, we‘re holding on to our people,” he said.

The company was recently named to the Forbes 2017 America's Best Large Employers list, an elite employer ranking based on the results of an independent survey conducted among 30,000 U.S. workers at companies and institutions across the country, as well as a recipient of the Glassdoor Employees' Choice Award which is based on employee reviews about Republic Services on Glassdoor.com.

Slager also addressed China’s recent notification to the World Trade Organization of plans to ban 24 types of solid waste imports. Like Waste Management CEO Jim Fish, Slager said he expected the impacts to be muted.

“This is not the first time we’ve seen this kind of thing from China,” Slager said. “We’ve been through this a number of times. We have a high quality pack that we make. We’ve never had an issue with quality rejection. … We’ve never had a slowdown in shipping our materials.”

Slager also noted that only about 35 percent of Republic’s recycled materials go to China.

“There is more domestic capacity than people realize,” he added.

The company reported that it is has continued to convert contracts from CPI to a more favorable pricing mechanism for the annual price adjustment. It now has approximately $440 million in annual revenue tied to a waste-related index or a fixed-rate increase of 3 percent or greater.

Republic also said it has now completed its standardized maintenance initiative and the entire fleet is now certified under the program.

Republic invested $36 million in tuck-in acquisitions during the second quarter and $91 million year-to-date.

Other highlights from the firm’s results:

  • Year-to-date cash provided by operating activities was $879 million and adjusted free cash flow was $358 million, an increase of approximately 6 percent over the prior year.
  • Revenue growth from average yield was 2.5 percent and volumes increased 1.9 percent. Total internal growth amounted to 7.2 percent—up from 1.3 percent in the second quarter of 2016.
  • Core price increased revenues by 4.1 percent, which consisted of 5.3 percent in the open market and 2.2 percent in the restricted portion of the business.
  • Adjusted EBITDA increased $42 million to $700.6 million. That was a 6 percent increase over the prior year. Adjusted EBITDA margin was 28.0 percent of revenue.
  • In terms of fleet-based initiatives, Republic is now up to 19 percent of its fleet operation on compressed natural gas. That’s up from 17 percent last year. Additionally, 75 percent of its fleet is now automated, up from 73 percent in 2016.
  • Total operating revenues from collections amounted to $1.86 billion, up from $1.78 billion in 2016. Broken down by line, residential collections came to $576.4 million, small-container was $747.1 million, large container was $528.7 million and “other” amounted to $10.7 million.
  • Total operating revenues for landfills were $568.7 million, for transfer operations were $312.0 million and for sale of recycled commodities were $136.0 million. Energy services also produced $36.1 million in revenue and other non-core operations amounted to $47.2 million.
  • In terms of sales of recycled commodities, Republic averaged $157 per ton during the quarter, up from $116 per ton the prior year.
  • Republic’s total cost of operations came to $1.56 billion, or 61.6 percent as a percent of revenue.
  • Adjusted free cash flow came to $358.3 million for the six months ended June 30, up from $337.2 million in 2016.

Covanta Records Strong Operational Metrics, but Posts Net Loss

Morristown, N.J.-based Covanta Holding Corp., meanwhile, posted revenues of $424 million, up from $418 million in the second quarter of 2016.

The company, however, posted a net loss of $37 million, down from $29 million a year ago. Its adjusted EBITDA rose to $93 million in 2017 from $82 million in 2016.

"Our second quarter results highlight strong underlying operating performance, continued improvement in waste markets and our ability to drive incremental value through our Covanta Environmental Solutions platform," Covanta President and CEO Stephen J. Jones said in a statement. "Resumption of waste processing at Fairfax is now expected in the fourth quarter, but we expect insurance recoveries to continue to mitigate the cost of the downtime. I am proud of our team's performance in the first half of the year, and I look forward to an even stronger second half and further growth in 2018."

Other highlights from the firm’s results:

  • Total operating revenues from its waste and service line came to $310 million, up from $297 million in 2016. Energy revenue was $75 million, down from $86 million in 2016. Recycled metals revenue was $15 million, down from $17 million last year. And other operating revenue was $24 million, up from $18 million in 2016.
  • Covanta’s total cost of operations came to $404 million.
  • Adjusted free cash flow was -$21 million for the three months ended June 30, down from -$5 million in the second quarter of 2016.
  • In terms of other operating metrics, its contracted revenue per ton (for 4.3 million tons of waste) was $47.70 per ton (up from $45.87 per ton in 2016). For 500,000 tons of uncontracted waste, its revenue was $79.95 per ton, up from $74.94 per ton in 2016. That put its average at $50.88 per ton, up from $48.71 per ton last year.
  • Average revenue for its energy sales was $44.83 per MWh of energy, down from $49.25 per MWh in 2016.
  • Covanta recovered 98,000 tons of ferrous metals in the quarter, down slightly from 102,000 tons in 2016. It also recovered 9,000 tons of non-ferrous metals, which was flat from last year. Of that, it sold 68,000 tons of ferrous metals and 5,000 tons of non-ferrous metals. Its revenue per ton was $152 for ferrous metals (up from $138 per ton in 2016) and $892 per ton for non-ferrous metals (up from $650 per ton last year).


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