Waste Connections (WCN) Beats on Q4 Earnings, Offers View

Integrated solid waste services firm Waste Connections Inc. WCN reported relatively healthy fourth-quarter 2016 results, with adjusted net income of $120.3 million or 68 cents per share, compared with $59.8 million or 49 cents per share in the year-ago quarter. The year-over-year increase in adjusted earnings was primarily attributable to a nearly two-fold rise in revenues during the quarter. Adjusted earnings beat the Zacks Consensus Estimate by 3 cents.

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GAAP earnings for the reported quarter were $85.6 million or 49 cents per share compared with $52.1 million or 42 cents per share in the year-ago quarter. The significant improvement in GAAP earnings was largely due to top-line growth.

For full-year 2016, GAAP earnings were $246.5 million or $1.60 per share as against a loss of $95.8 million or loss of 78 cents per share in 2015. Adjusted earnings for 2016 improved to $395.2 million or $2.57 per share from $244.9 million or $1.98 per share in the prior year.

Revenues came in at approximately $1,048.6 million, up from $531.9 million a year ago, primarily due to the contribution of $497.9 million from the accretive Progressive Waste acquisition. Quarterly revenues exceeded the Zacks Consensus Estimate of $1,024 million. For the full year, the company recorded revenues of $3,375.9 million compared with $2,117.3 million in 2015.

Operating income for the reported quarter was $139.2 million compared with $101.7 million in prior-year period. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased to $325.4 million from $175.6 million in the year-ago quarter.

Segmental Revenues

Solid Waste Collection segment was the highest contributor to total revenue in the quarter at 70.3%. The segment’s revenues increased significantly from $353.1 million in the year-earlier quarter to $737.8 million.

Solid Waste Disposal and Transfer contributed 20.5% to the overall revenues. Quarterly revenues were up to $214.8 million from $107.8 million in the prior-year quarter. Solid Waste Recycling revenues improved to $29.2 million (2.8% of total revenue) from $11.4 million a year ago.

E&P Waste Treatment, Recovery and Disposal saw a major drop in revenues to $32.2 million (3.1%) from $43.1 million in the year-ago quarter, owing to a continued drop in drilling activity throughout the period.

Finally, Intermodal and Other contributed 3.3% to the total revenue, and increased to $34.7 million from $16.4 million in the prior-year quarter.

Waste Connections, Inc. Price, Consensus and EPS Surprise

 

Waste Connections, Inc. Price, Consensus and EPS Surprise | Waste Connections, Inc. Quote

Balance Sheet & Cash Flow

At year-end 2016, Waste Connections had cash and cash equivalents of $154.4 million and long-term debt and notes payable of $3,616.8 million compared with the respective tallies of $11.0 million and $2,147.1 million in the prior-year period.

Net cash from operating activities was $795.3 million for 2016 compared with $577 million in 2015. Adjusted free cash flow was $110.7 million for the quarter compared with $44.4 million in the prior-year period, bringing the respective tallies for 2016 and 2015 to $550.9 million and $343 million.

The strong free cash flow profile following the Progressive Waste acquisition has enabled Waste Connections to maintain a healthy dividend payout for shareholders. This financial strength and flexibility, together with expanded footprint following the acquisition, will likely facilitate the company to better execute its long-term growth strategy, while increasing shareholder returns.

2017 Guidance

For full-year 2017, Waste Connections expects revenues to be approximately $4.45 billion. Adjusted EBITDA is anticipated to be about $1.41 billion, while adjusted free cash flow is expected to be approximately $725 million.

Waste Connections currently has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the industry include Clean Harbors, Inc. CLH, Republic Services, Inc. RSG and Advanced Disposal Services, Inc. ADSW, each carrying Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Clean Harbors has a long-term earnings growth expectation of 8.9% and is currently trading at a forward P/E of 61.9x.

Republic Services has a long-term earnings growth expectation of 9.1% and is currently trading at a forward P/E of 25.8x.

Advanced Disposal Services is currently trading at a forward P/E of 71.8x.

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