Stay in the Know - Subscribe to Our Newsletters
Join a network of more than 90,000 waste and recycling industry professionals. Get the latest news and insights straight to your inbox. Free.
Despite Commodity-related Headwinds, WCN Remains on Track for 2019
During a July 30 call with investors, WCN welcomed back Ronald J. Mittelstaedt, who has returned from his temporary leave of absence.
8 Min Read
Worthing F. Jackman, who recently assumed the role of president and CEO of Waste Connections Inc. (WCN), kicked of the company’s second quarter 2019 earnings call welcoming back Ronald J. Mittelstaedt, who has returned from his temporary leave of absence and assumed the role of executive chairman of the board of directors.
Mittelstaedt has stepped down from his day-to-day role as CEO to address matters affecting his family.
“First off, I’d like to thank our employees, everyone on today’s call and everyone for the thousands of cards my family and I have received over the past couple months,” said Mittelstaedt on the call. “I am happy to be back and pleased to claim the role of executive chairman. I remain committed to the company, and as a continuing employee, I look forward to assisting in several areas, including culture, solid waste and acquisitions. Exiting the day-to-day responsibilities as CEO provides sufficient time for me to continue to address health matters affecting my family. No matter who you are, regardless of your profession or title, family should always come first.”
“I look forward to the continued success of the company under Worthing, who has been a full part of the leadership team driving the success of Waste Connections over the last 20 years,” he added. “When I temporarily stepped aside earlier this year, Worthing stepped in and assumed the role of our executive officer, consistent with a management succession plan approved by our board. He and our long-tenured team did not miss a beat, continuing to implement our growth strategy and drive further improvements in safety, employee development and retention, while moving the company forward in other areas. Our board has great confidence in him as our new CEO, and we believe that he is the right person to lead the company.”
Jackman then went on to discuss WCN’s Q2 results. Revenue for the quarter was $1.37 billion, up from $1.24 billion in Q2 2018. Operating income was $222.1 million, compared to $210.7 million in Q2 2018.
He added that solid waste pricing growth of 5 percent drove underlying solid waste collections, which was offset by an impact from higher-margin, commodity-related activity, primarily from recycling and renewable fuels and a diluted impact from prior acquisitions completed in the previous year.
“Our team delivered on the commitments under their control, but the ongoing erosion in recycled commodity value and a precipitous drop in the value of renewable fuels impacted our overall results,” explained Jackman during the call. “In spite of these commodity-related headwinds, we have already generated adjusted free cash flow of more than $500 million and are on track to meet our original expectation for underlying adjusted free cash flow for the whole year.”
Net income attributable to Waste Connections in the second quarter was $148.8 million, or $0.56 per share on a diluted basis of 264.5 million shares. In the year ago period, the company reported net income of $138.7 million, or $0.52 per share on a diluted basis of 264.3 million shares.
Adjusted net income attributable to WCN in the second quarter was $181.3 million, or $0.69 per share, versus $172.3 million, or $0.65 per share, in the prior year period. Adjusted EBITDA in the second quarter was $425.3 million and 31.1 percent of revenue, as compared to adjusted EBITDA of $395.5 million and 31.9 percent of revenue in the prior year period.
“Solid waste pricing growth of over 5 percent, along with a sequential 200 basis points increase in solid waste volumes, drove underlying solid waste collection, transfer and disposal margin expansion of approximately 70 basis points in the quarter. This helped offset a portion of the impact from lower-than-expected contributions from higher-margin, commodity-related activities, primarily recycling and renewable fuels and the dilutive margin impact of acquisitions completed since the prior year period. Our team delivered on the commitments within their control, but the ongoing erosion in recycled commodity values and a precipitous drop in renewable fuel credits impacted overall results,” said Jackman in a statement. “In spite of these commodity-related headwinds, we have already generated adjusted free cash flow of more than $500 million, putting us on track to meet our original expectation for underlying adjusted free cash flow for the full year.”
“As anticipated, we have already completed an outsized year of acquisition activity with almost half of the year still ahead of us, as we have closed approximately $160 million in total annualized revenue,” added Jackman. “We are particularly pleased with the approximate 65 percent average reduction in safety-related incidents in the three largest acquisitions completed over the last several months, and we look forward to continued improvement, as we are accelerating the timing to automate the residential fleet in our largest acquired location. In addition, new contract awards are trending above average. These wins provide foundations for further growth next year but require incremental capex in the current year, which, along with the accelerated fleet conversion referenced above, totals approximately $35 million and will impact reported adjusted free cash flow. The strength of our financial profile and free cash flow generation keeps us well positioned for additional acquisitions and organic growth opportunities, while maintaining the flexibility to increase the return of capital to shareholders.”
Additional Q2 2019 highlights include:
Revenue of $1.370 billion, up $179 million, or 10.5 percent for the whole year.
Adjusted EBITDA of $425.3 million, or 31.1 percent of revenue. During the July 30 call with investors, WCN’s Chief Financial Officer Mary Anne Whitney explained: “This is consistent with the early update we provided in June, with about $8.5 million below our original outlook for the period due to the decline in commodity-related revenues and the associated EBITDA impact.”
Net cash provided by operating activities was $753 million.
Adjusted free cash flow was $503.9 million, or 19.3 percent of revenue.
Acquired annualized revenue was approximately $160 million.
For the six months ended June 30, 2019, revenue was $2.614 billion, as compared to revenue of $2.380 billion in the year ago period. Operating income was $407 million, which included $31.3 million of expenses primarily related to impairments and other items related to the termination of certain contracts and other acquisition-related costs; this compared to operating income of $399.4 million for the same period in 2018, which included $18.3 million of expenses primarily related to impairments and other items related to the termination of certain contracts and other acquisition-related costs.
Net income attributable to WCN was $274.5 million, or $1.04 per share on a diluted basis of 264.4 million shares. In the year ago period, WCN reported net income of $263.6 million, or $1 per share on a diluted basis of 264.5 million shares.
Adjusted net income attributable to WCN was $345.2 million, or $1.31 per share, compared to $320.9 million, or $1.21 per share, in the year ago period. Adjusted EBITDA for the six months ended June 30, 2019, was $811 million and 31 percent of revenue, as compared to $752.4 million and 31.6 percent of revenue in the prior year period.
WCN also updated its outlook for 2019, which assumes no change in the current economic environment, explained Whitney. The company’s outlook excludes any impact from additional acquisitions that may close during the year and expensing of transaction-related items.
Revenue for full-year 2019 is estimated to be approximately $5.375 billion, as compared to the company’s original revenue outlook of approximately $5.310 billion due primarily from higher-than-anticipated contributions from acquisitions and partially offset by greater-than-expected declines in recycling revenue and in the value of renewable energy credits from qualifying landfill gas bills, noted Whitney during the call.
Net income attributable to WCN is estimated to be approximately $573 million, and adjusted EBITDA is estimated to be approximately $1.675 billion, or about 31.2 percent of revenue, as compared to the company’s original adjusted EBITDA outlook of $1.705 billion.
Capital expenditures are estimated to be approximately $600 million, as compared to its original capital expenditures outlook of approximately $575 million, due primarily to $35 million of incremental capital expenditures primarily related to contracts awarded during 2019.
Net cash provided by operating activities is estimated to be approximately $1.51 billion, as compared to WCN’s original outlook of $1.525 billion, and adjusted free cash flow, including the incremental $35 million in capital expenditures noted above, is estimated to be approximately $915 million, or about 17 percent of revenue, as compared to WCN’s original adjusted free cash flow outlook of approximately $950 million.
“The underlying fundamentals of our solid waste business remain strong, and we are extremely pleased with our year-to-date performance,” concluded Jackman. “Improving trends in safety and turnover, which trended lower in Q2, are indicative of our local leadership and the dedication of our 18,000 employees, who work tirelessly every day to drive our results. Strength in solid waste pricing, positive volume trends and underlying EBITDA margin expansion in solid waste collection, transfer and disposal position us well for the remainder of the year. As noted earlier, underlying adjusted free cash flow is on track to achieve our original $950 million outlook for the year.”
About the Author
You May Also Like
