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Why Is Waste Connections (WCN) Down 0.4% Since Last Earnings Report?

Zacks Equity Research

A month has gone by since the last earnings report for Waste Connections (WCN). Shares have lost about 0.4% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waste Connections due for a breakout? 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 catalysts.

Waste Connections Q2 Earnings In Line, Revenues Beat Estimates

Waste Connections reported decent second-quarter 2019 results.

Adjusted earnings of 69 cents per share matched the Zacks Consensus Estimate and increased 6.2% year over year. Revenues of $1.37 billion beat the consensus estimate by $9.2 million and improved 10.5% year over year.

The company has gained almost $84.3 million of revenues from its acquisitions completed since the year-ago period.

Revenues by Segment

Solid Waste Collection segment revenues increased 12.1% year over year to $955.39 million. The segment accounted for 69.8% of total revenues.

Solid Waste Disposal and Transfer segment revenues increased 12.8% from the year-ago quarter to $303.39 million. The segment contributed 22.1% to total revenues.

E&P Waste Treatment, Recovery and Disposal segment revenues increased 6.3% from the year-ago quarter to $64.02 million. The segment contributed 4.7% to total revenues.

Intermodal and Other segment revenues declined 16.4% to $30.51 million. The segment accounted for 2.2% of total revenues.

Solid Waste Recycling segment revenues declined 25.8% year over year to $16.33 million. The segment accounted for 1.2% of total revenues.

Operating Results

Adjusted EBITDA in the second quarter was $425.28 million compared with $395.51 million in the year-ago quarter. Adjusted EBITDA margin came in at 31.1% compared with 31.9% in the year-ago quarter. 

Operating income totaled $222.13 million compared with $210.69 million in the year-ago quarter. Operating margin was 16.2% compared with 16.9% in the year-ago quarter. 

Balance Sheet and Cash Flow

Waste Connections exited second-quarter 2019 with cash and cash equivalents of $209.21 million compared with $499.48 million at the end of prior quarter. Long-term debt was $4.08 billion compared with $4.16 billion at the end of prior quarter.

The company generated $389.28 million of cash from operating activities in the reported quarter. Adjusted free cash flow was $257.58 million and capital expenditures totaled $139.55 million. Waste Connections paid dividend of $42.13 million in the reported quarter.

2019 Outlook

Waste Connections updated its guidance for 2019. Revenues are anticipated to be roughly around $5.375 billion compared with the prior guidance of $5.310 billion. Net income is estimated at around $573 million. Adjusted EBITDA is estimated to be around $1.675 billion compared with the prior guidance of $1.705 billion. Capital expenditures are expected to be nearly $600 million compared with the prior guidance of roughly $575 million. Net cash provided by operating activities is estimated to be around $1.510 billion compared with the prior guidance of $1.525 billion. Adjusted free cash flow is anticipated to be around $915 million compared with the prior guidance of $950 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review.

VGM Scores

Currently, Waste Connections has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Waste Connections has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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