WCN Reports Q4 2019 Earnings Results, 2020 Outlook

Revenue for the quarter was $1.362 billion, compared to revenue of $1.262 billion in Q4 2018.

Net income in Q4 2019 was $133.3 million, or $0.50 per share on a diluted basis of 264.6 million shares. In Q4 2018, the company reported net income of $132.5 million, or $0.50 per share on a diluted basis of 264.5 million shares.

Adjusted net income in Q4 2019 was $181.4 million, or $0.69 per diluted share, versus $166.2 million, or $0.63 per diluted share, in the prior year period.

Adjusted EBITDA in the fourth quarter was $419.0 million, as compared to adjusted EBITDA of $397.2 million in the prior year period.

During the call with investors, Jackman reported that solid waste price plus volume growth was 4 percent, which is in line with the upper end of the company’s outlook for the quarter.

Operating income, which included $29.0 million of impairments and other operating items primarily related to the company’s sale of a non-strategic materials processing facility and $3.7 million of acquisition-related costs, was $194.2 million. This compares to $200.0 million in the prior year period, which included $14.0 million of impairments and other operating items and $2.8 million of acquisition-related costs.

Recycling revenue, excluding acquisitions, was about $12 million in Q4 2019, down $10 million, or approximately 46 percent, year-over-year. Old corrugated cardboard (OCC) prices in Q4 averaged about $41 per ton, down about 56 percent in the year-ago period and about 5 percent, or $2 per ton, from Q3. "We continue to believe that pricing stability and ultimately some amount of improvement are reasonable expectations as a result of higher demand for recycled feedstock by both new mills and domestic mills expected to convert to accepting recovered fiber," said Jackman. "We've also seen indications of higher international demand for OCC, which could also support higher domestic fiber pricing for us."

On a combined basis, commodity-related revenues from recycled commodities and renewable energy credits (RINs) from landfill gas sales were largely in line with Q3 as expected, with slightly weaker recycled commodity values offset by stronger RINs.

Landfill gas revenue was approximately $12 million in Q4, down about $4 million, or 25 percent, year-over-year. RINs, which account for about 40 to 45 percent of landfill gas revenue, averaged about 82 cents in Q4, up 19 percent from Q3 but down 59 percent year-over-year.

WCN reported $62.5 million of E&P waste revenue in the quarter, which was above the high end of its outlook. E&P waste revenue in Q4 was down about 2.3 percent year-over-year and down about 5.8 percent sequentially from Q3, marking the company’s strongest quarter in two years, according to Jackman.

The company closed approximately $130 million in acquired annualized revenue in Q4. These acquisitions included Penn Waste, a recycling facility in Illinois that complements the company’s existing operations and collection and transfer assets in Tennessee.  

WCN expects pricing growth to continue to average about 5 percent, starting higher at approximately 5.5 percent early in the year due to the rollover impact of higher price increases implemented in 2019.

Jackman noted that WCN expects reported volumes to be about flat for the full year.

For full-year 2020, WCN estimates that revenue will be in the range of $5.725 billion and $5.775 billion.

The company expects solid waste pricing growth of approximately 5 percent, with volumes about flat.

Adjusted EBITDA in 2020 is expected to be in the range of approximately $1.76 billion to $1.785 billion, down about 20 to 40 basis points year-over-year as underlying margin expansion in solid waste collection, transfer and disposal is expected to be more than offset by a combined estimated 65 basis point impact.

Adjusted free cash flow in 2020 is expected to be in the range of $975 million to $1 billion, or between 17 percent and 17.3 percent of revenue.

Net income is expected to be in the range of $653.0 million to $668.0 million.

Net cash provided by operating activities is expected to be in the range of $1.600 billion to $1.625 billion.

For Q1 2020, revenue is estimated to be approximately $1.36 billion, and price growth for solid waste is expected to be approximately 5.5 percent, with volume in the range of flat to up to 50 basis points. Additionally, E&P waste revenue is estimated to be in the range of $55 million to 60 million, and adjusted EBITDA is estimated to be approximately $405 million, or 29.8 percent of revenue.

The margin headwinds expected from lower year-over-year commodity-related revenues, lower E&P waste revenues and acquisition contributions are expected to be the most pronounced in Q1, totaling more than 100 basis points. One additional headwind specific to Q1 is the impact of one extra day in the quarter due to leap year, stated Mary Ann Whitney, WCN senior vice president and chief financial officer, on the call with investors.

Jackman noted that throughout January, RIN prices remained mostly in line with Q4 levels, but they recently jumped as high as $1.60. He said it’s too soon to know if these levels will persist throughout the quarter and full year, however.