A month has gone by since the last earnings report for Waste Connections (WCN). Shares have added about 4.7% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Waste Connections due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Waste Connections Beats Q4 Earnings & Revenue Estimates
Waste Connections delivered impressive fourth-quarter 2018 results, with earnings and revenues beating the Zacks Consensus Estimate.
Adjusted earnings per share of 63 cents surpassed the consensus mark by 2 cents and improved 21.2% year over year. The bottom line was positively impacted by price-driven earnings growth in solid waste segment, lower tax rates (as a result of Tax Cuts and Jobs Act) and improved operational efficiency.
Quarterly revenues came in at $1.26 billion, which outpaced the consensus mark by $34.3 million. The figure increased 9% on a year-over-year basis. Strength across majority of the segments and a favorable impact of $61.4 million from solid waste acquisitions, net of divestitures drove the top line.
Consistent strength in solid waste pricing growth, E&P waste activity and contributions from acquisitions aided the company’s results, offsetting recycling and cost-related headwinds.
Revenues in Details
Revenues in the Solid Waste Collection segment increased 9.3% year over year to $872.26 million. The segment contributed 69% of total revenues.
Revenues in the Solid Waste Disposal and Transfer segment rose 13.4% year over year to $270.05 million. It contributed 21% to total revenues.
Revenues in the E&P Waste Treatment, Recovery and Disposal segment improved 20.1% year over year to $63.97 million. It contributed 5% to total revenues.
Revenues in the Intermodal and Other segment fell 14% year over year to $33.58 million. It contributed 3% to total revenues.
Revenues in the Solid Waste Recycling segment fell 23.4% year over year to $21.87 million. The unit contributed 2% to total revenues.
Adjusted EBITDA for the fourth quarter was $397.2 million compared with $360.7 million in the year-ago quarter. Adjusted EBITDA margin was 31.5% of total revenues compared with 31.2% in the prior-year quarter.
Operating income totaled $199.98 million compared with $175.01 million. Operating margin (operating income as a percentage of revenues) was 15.8% compared with 15.1% in the year-ago quarter.
Balance Sheet and Cash Flow
Waste Connections exited the fourth quarter with cash and cash equivalents balance of $319.31 million compared with $244.39 million in the previous quarter. Long-term debt at the end of the quarter was $4.15 billion compared with $3.75 billion at the end of the prior quarter.
The company generated $373.44 million of cash from operating activities in the reported quarter and spent $172.63 million on capex. Adjusted free cash flow was $204.2 million compared with $203 million in the last reported quarter.
Waste Connections paid dividend of $42.1 billion in the quarter.
Concurrent with the earnings release, the board of directors announced a regular quarterly cash dividend of 16 cents per common share. The dividend will be paid on Mar 15, 2019 to shareholders of record as on Mar 1.
Waste Connections expects revenues to be around $1.24 billion. Adjusted EBITDA is estimated around $383 million (roughly 30.9% of revenues). Depreciation and amortization expenses are expected to be around 14.1% of revenues. Of this, amortization of intangibles is expected around $30.6 million or 8 cents per share net of taxes. Interest expense net of interest income is anticipated around $35 million. Further, the company expects effective tax rate to be about 20% in first-quarter 2019.
The company expects revenues to be around $5.310 billion. Net income is projected around $636 million. Adjusted EBITDA is estimated around $1.705 billion or about 32.1% of total revenues. Further, net cash provided by operating activities is expected to be roughly $1.525 billion. Adjusted free cash flows are anticipated to be around $950 million. Effective tax rate for 2019 is estimated in the range of 21.5-26.5%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates.
At this time, Waste Connections has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Waste Connections has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.
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