Waste Connections (WCN) Beats on Q2 Earnings, Raises ’18 View

Waste Connections, Inc. WCN reported strong second-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate.

Adjusted earnings per share (EPS) of 65 cents surpassed the Zacks Consensus Estimate of 63 cents and improved 18.2% year over year. The bottom line was positively impacted by price-driven earnings growth in the solid waste segment and improved operational efficiency.

Quarterly revenues of $1.24 billion beat the Zacks Consensus Estimate of $1.22 billion. The figure was up 5.4% year over year. Strength across majority of the segments and favorable impact of $32.8 million from solid waste acquisitions, net of divestitures, drove the top line. The company has gained almost $175 million of total annual revenues from acquisitions year to date.

Continued strength in solid waste pricing growth, E&P waste activity and contributions from acquisitions drove the company’s results, offsetting headwinds from recycling and delay in the ramp up of special waste activity across several markets due to adverse weather conditions.

The company’s shares have gained 19.3% over the past year compared with the industry’s rise of 12%.

Let’s check the numbers.

Revenues by Segment

Solid Waste Collection segment revenues increased 7.2% year over year to $852.28 million. The segment accounted for 68.7% of total revenues.

Solid Waste Disposal and Transfer segment revenues increased 4.5% year over year to $268.95 million. It contributed 21.7% of total revenues.

E&P Waste Treatment, Recovery and Disposal segment revenues increased 27.75 year over year to $60.23 million. It contributed 4.9% of total revenues.

Intermodal and Other segment revenues increased 5.34% year over year to $36.5 million. It accounted for 2.9% of total revenues.

Solid Waste Recycling segment revenues fell 46.8% year over year to $22 million. It accounted for 1.8% of total revenues.

Operating Results

Adjusted EBITDA was $395.5 million compared with $373.6 million in the year-ago quarter. Adjusted EBITDA margin was 31.9% of total revenues compared with 31.8% in the prior-year quarter.

Operating income for second-quarter 2018 was $210.69 million compared with $206.91 million. Operating margin was 17% compared with 17.6% in the year-ago quarter.

Balance Sheet and Cash Flow

Waste Connections exited second-quarter 2018 with cash and cash equivalents of $145.8 million compared with $217.54 million in the prior quarter. Long-term debt at the end of the quarter was $3.79 billion compared with $3.88 billion at the end of the preceding quarter.

The company generated $357.68 million of cash from operating activities in the reported quarter and spent $110.50 million on capex. Adjusted free cash flow was $252.55 million compared with $220.15 million in the last reported quarter.

Waste Connections paid dividend of $36.77 billion in the quarter.

Concurrent with the earnings release, the company’s board of directors announced a quarterly cash dividend of 14 cents per share, payable on Aug 21 to shareholders of record as of Aug 7.

Q3 Outlook

Waste Connections expects revenues to be around $1.27 billion, in line with the Zacks Consensus Estimate. Adjusted EBITDA is estimated around $413 million (roughly 32.5% of revenues).

Depreciation and amortization expenses are expected to be around $13.6% of revenues. Of this, amortization of intangibles is expected around $26.6 million or 7 cents per share net of taxes. Interest expense net of interest income is anticipated around $32 million. Further, the company expects effective tax rate to be about 22.5% in third-quarter 2018.

2018 Outlook

Waste Connections raised 2018 guidance for revenues, adjusted EBITDA, adjusted free cash flow and capital expenditures. The company expects revenues to be around $4.88 billion compared with the previous guidance of $4.825 billion. The Zacks Consensus Estimate is pegged at $4.89 billion.

Adjusted EBITDA is estimated around $1.555 billion or about 31.9% of total revenues, compared with the previous range of $1.550 billion.

Further, net cash provided by operating activities is expected to be roughly $1.379 billion. Adjusted free cash flows are anticipated to be around $860 million compared with the previous expectation of $850 million.

Capital expenditures are expected around $530 million compared with previous projection of $500 million. Effective tax rate for 2018 is estimated to be around 22.5%.

Zacks Rank & Upcoming Releases

Waste Connections currently has a Zacks Rank #3 (Hold).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Investors interested in the broader Business Services Sector are keenly awaiting second-quarter earnings reports from Clean Harbors, Inc. CLH, US Ecology, Inc. ECOL and ExlService Holdings, Inc. EXLS. Clean Harbors will release second-quarter results on Aug 1. US Ecology and ExlService Holdings will announce results on Aug 2.

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