Waste Connections Picks Up Momentum in Q2 on Rising Volumes, Commodity Prices

Recovering commodity prices and returning volumes contributed to a significant Q2 for Waste Connections, Inc. (TSX/NYSE: WCN).

Revenue in Q2 2021 increased to $1.534 billion, up 17.5%, or from $1.306 billion year over year (YOY). Solid waste pricing, volume growth and recovering commodity values contributed to the company's success in the second quarter.

CEO Worthing Jackman indicated that the trends drove year-to-date adjusted EBITDA margin expansion of 110 basis points. Q2 adjusted EBITDA reached $484.9 million, or 31.6% of revenue, up from $394.3 million and 30.2% of revenue YOY. 

"Given expected continuing momentum and margin expansion from these trends position us to raise our full year outlook for revenue, adjusted EBITDA, adjusted EBITDA margin and adjusted free cash flow," he said.

Acquisition activity is anticipated to make 2021 an "outsized year." Waste Connections has secured 14 acquisitions to date totaling $115 million in annualized revenue. About $75 million of that is attributed to franchise operations in California, Nevada, and Oregon are expected to close later in 2021.

Jackman said, "we continue to see record amounts of seller interest driving elevated acquisition dialogue, and as communicated throughout the year, expect closings related to most of this activity to be more weighted to the second half of the year, which will provide further upsides, our increased outlook for the year and strong rollover growth into 2022."

Operating income reached $266.8 million in Q2 2021. Net income for the second quarter was $177 million. Last year, Waste Connections reported net loss of $227.1 million in Q2. Adjusted net income in the second quarter was $210.9 million up from $158.0 million in the previous year.

Second quarter solid waste price exceeded expectations, growing 11.4% or by nearly 150 basis points as higher-than-expected volumes due to recovery beginning in Q1 continued. Landfill tons and roll-off business returned to pre-pandemic levels or above.

Total core pricing rose 4.9%, up 70 basis points sequentially was above the outlook on higher core pricing of 4.7%.

"As a result of incremental price increases we have already put in place to offset certain cost pressures, reported volume growth of six and a half percent in Q2 reflected sequential provement of approximately 1000 basis points from Q1 and was led by those regions where markets were hardest hit during the pandemic, including the Northeast U.S. and Canada," Jackman said. All regions showed sequential improvement from Q1 and all reported positive volumes in Q2."

As a result of continuing growth, Waste Connections released updated 2021 full-year guidance:
Revenue is now estimated at $5.975 billion, up from the previous figure of $5.8 billion. 
Adjusted EBITDA, a non-GAAP measure, is estimated at $1.875 billion or 31.4% of revenue, up from the previous figure of $1.8 billion. 
The company expects net income to be approximately $690 million.
Adjusted free cash flow is estimated at $1 billion, or about 16.7% of revenue, up from the previous figure of $950 million.
Net cash provided by operating activities will be approximately $1.666 billion, revised from $1.575 billion.
Capital expenditures are expected to reach $675 million as compared to the previous estimate of $625 million.