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Waste Connections (WCN) Q4 Earnings Beat, Revenues Rise

Zacks

Waste Connections, Inc. WCN reported better-than-expected results in fourth-quarter 2017 primarily due to solid waste internal growth, E&P waste activity and income tax benefits.

GAAP earnings for the quarter came in at $315.1 million or $1.19 per share compared with $85.6 million or 32 cents per share in the year-ago period. Such a drastic rise was substantiated by enactment of the Tax Cuts and Jobs Act of 2017, which benefited the company. GAAP earnings for full-year 2017 came in at $576.8 million or $2.18 per share compared with $246.5 million or $1.07 per share in 2016. The improvement in earnings was primarily due to solid top-line growth.

For the fourth quarter adjusted earnings came in at $137 million or 52 cents per share compared with $120.3 million or 46 cents per share in the prior-year quarter, beating the Zacks Consensus Estimate of 49 cents. For 2017, adjusted earnings came in at $570.7 million or $2.16 per share compared with $395.2 million or $1.71 per share a year ago. The upside was primarily driven by growth in solid waste volumes, E&P waste activity and recycled commodity prices.

Revenues for the quarter improved to $1,157.2 million from $1,048.6 million and exceeded the Zacks Consensus Estimate of $1,125 million. Revenues for 2017 improved to $4,630.5 million from $3,375.9 million in the prior year. The year-over-year rise in the top line was driven by the accretive Progressive Waste acquisition.

Operating income for the fourth quarter was $175 million compared with $139.2 million in year- ago period. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) for the reported quarter increased to $360.7 million from $325.4 million in the prior-year period.

Segmental Performance

Solid Waste Collection segment was the highest contributor to total revenues in the fourth quarter at 69%. The segment’s revenues increased significantly from $737.8 million in the year-earlier quarter to $798.2 million.

Solid Waste Disposal and Transfer contributed 20.6% to overall revenues in the quarter. Quarterly revenues increased to $238.1 million from $214.8 million in the prior-year quarter.

Solid Waste Recycling revenues decreased to $28.6 million (2.4% of total revenue) from $29.2 million a year ago.

E&P Waste Treatment, Recovery and Disposal segment revenues increased to $53.3 million (4.6% of total revenues) from $32.2 million.

Finally, Intermodal and Other contributed 3.4% to total revenues and increased to $39 million from $34.7 million in the prior-year quarter.

Balance Sheet and Cash Flow

Waste Connections had cash and cash equivalents of $433.8 million as of Dec 31, 2017 compared with $154.4 in the year-ago period. Net cash inflow from operating activities amounted to $1,187.3 million at the year-end 2017 compared with $795.3 million in the year-ago period.

Long-term debt increased to $3,899.6 million at year-end 2017from $3,616.8 million in the year-prior period.

In 2017, adjusted free cash flow was $763.9 million or 16.5% of revenues compared with $550.9 million or 16.3% of revenues in 2016.

2018 Guidance

For 2018, Waste Connections anticipates revenues of approximately $4.8 billion excluding additional acquisitions. The company expects adjusted EBITDA to increase 60 basis points on year-over-year basis.

In 2018, the company expects net cash inflow from operating activities to be approximately $1.4 billion or 28% of revenues.

For 2018, adjusted free cash flow is expected to be approximately $850 million or 17.6% of revenues.

Waste Connections, Inc. Price, Consensus and EPS Surprise

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

Zacks Rank & Key Picks

Waste Connections has a Zacks Rank #3 (Hold). It pulled off an average positive earnings surprise of 4.8%, beating estimates in each of the trailing four quarters.

A few better-ranked stocks in the same industry are:

Republic Services, Inc. RSG, On Assignment, Inc. ASGN and Waste Management, Inc. WM each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Republic Services surpassed estimates in the each of trailing four quarters with an average beat of 5.1%. It has an expected long-term earnings growth rate of 10.2%.

On Assignment exceeded estimates thrice in the trailing four quarters with an average beat of 5.4%. It has an expected long-term earnings growth rate of 10%.

Waste Management has an expected long-term earnings growth rate of 9.6%.

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