Key Takeaways from Waste Connections’ Q4 2015 Earnings

Revenue totaled $531.9 million in the fourth quarter, up from $526.2 million in the same period last year. For the year ended December 31, 2015, revenue was $2.12 billion, up from $2.08 billion in 2014.

“Favorable revenue trends and an approximate 180 basis point year-over-year margin expansion in solid waste drove exceptional results and an almost 50 percent conversion of EBITDA to free cash flow in 2015,” Waste Connections Chairman & CEO Ronald J. Mittelstaedt said during a conference call with investors. “Strong pricing growth and better than expected volume in the first nine months of the year continued in Q4 enabling us to once again exceed our expectations and outlook for the quarter.”

Waste Connections reported price and volume growth of 4.8 percent during the quarter, which Mittelstaedt said was 80 basis points above it's expectations. "Core pricing in the period was 2.9 percent year-over-year, with total pricing growth net of surcharges of 2.4 percent. Volume growth year-over-year was 2.4 percent with both Western and Eastern regions posting volume growth of over 3 percent."

Waste Connections also said commercial revenue increased 8 percent year-over-year and roll-up revenue on a same-store basis grew 7 percent. 

Solid waste landfill tonnage grew 6 percent year-over year. C&D tonnage grew 19 percent. Special waste tonnage grew 5 percent. MSW tons were up 4 percent. Overall 75 percent of Waste Connection’s landfills reported higher MSW tons year-over-year.

Recycling remained a challenged. Revenue in the sector was $11.4 million in the fourth quarter, down $1.6 million year-over-year “due to weaker commodities prices for plastics and metals and lower third-party volumes." Mittelstaedt said. "Prices for OCC averaged $106 per ton, down 3 percent from a year ago and 4 percent sequentially from Q3. … Year-over-year headwinds will persist in Q1.” 

Fourth quarter operating income was $101.7 million compared to $114.0 million in the fourth quarter of 2014. For the full year, operating loss was $61.5 million, compared to operating income of $449.3 million in the prior year.

Adjusted EBITDA in the fourth quarter was $175.6 million, or 33.0 percent of revenue, compared to $178.2 million, or 33.9 percent of revenue, in the prior year period. In 2015, Waste Connections recorded net impairment charges of approximately $497.1 million against its E&P segment. Adjusted EBITDA in 2015 was $710.6 million, or 33.6 percent of revenue, compared to $717.1 million, or 34.5 percent of revenue, in the prior year.

Net income attributable to Waste Connections in the quarter was $52.1 million, or $0.42 per share on a diluted basis of 123.1 million shares. In the year ago period, Waste Connections reported net income attributable to Waste Connections of $60.8 million, or $0.49 per share on a diluted basis of 124.8 million shares. Net loss attributable to Waste Connections in 2015 was $95.8 million, or $0.78 per share on a diluted basis of 123.5 million shares. In 2014, Waste Connections reported net income attributable to Waste Connections of $232.5 million, or $1.86 per share on a diluted basis of 124.8 million shares.

Adjusted net income attributable to Waste Connections in the quarter was $59.8 million, or $0.49 per share, versus $63.3 million, or $0.51 per share, in the prior year period. Adjusted net income attributable to Waste Connections in 2015 was $244.9 million, or $1.98 per share, compared to $254.2 million, or $2.04 per share, in the prior year.

Waste Connections also declared a regular quarterly cash dividend of $0.145 per share on the company's common stock.

Waste Connections also announced its outlook for 2016, which assumes no change in the current economic environment and excludes any impact from the pending combination with Progressive Waste. Revenue is estimated to be between $2.20 billion and $2.22 billion, of which approximately $150 million is expected to be E&P waste-related. Adjusted EBITDA is estimated to be approximately $750 million, or 33.9 percent of revenue.

Waste Connections also provided an update on its pending combination with Progressive Waste. “Integration planning meetings are well under way and we still expect the transaction will close during the second quarter,” Mittelstaedt said during the call. The transaction is expected to close in the second quarter of 2016. Upon closing, the combined company will use the Waste Connections name and it is anticipated that its shares will trade on the New York Stock Exchange and the Toronto Stock Exchange. Upon completion of the transaction, the combined company will be led by Waste Connections' current management team. The Board of Directors for the combined company will include the five current members of Waste Connections' Board and two members from Progressive Waste's current Board.

Michael E. Hoffman of Stifel in analyzing the results wrote, “We maintain our BUY rating and $65 target price on the shares of Waste Connections (WCN, BUY, $56.60). Parsing the commentary on the 4Q15 conference call, there should be no confusion solid waste fundamentals are good and there is no sign of any broad based weakness from the consumer. WCN has nominal exposure to the industrial economy and even that is not showing any weakness. The focus should be on FCF, which is forecast better than the preliminary outlook in 3Q15.”