By the numbers
Q2 net income: $115.8M
Down from $148.2 million in Q2 2022
Adjusted EBITDA: $287.5M
Down from $309.1M in the second quarter of 2022
- Economic picture: Clean Harbors is sticking with its initial full-year guidance, as its environmental solutions business continues to grow at strong rates and its Safety-Kleen Sustainable Solutions business suffers from low base oil prices. Adjusted free cash flow for the quarter was about $86 million, and Clean Harbors reiterated its full-year guidance of $305 million to $345 million in adjusted free cash flow. Net cash from operating activities rose by $37 million year-over-year, but that was offset by higher spending on additions to property, plant and equipment.
- Cost-cutting and integration: In reaction to market forces, the company is targeting $100 million of reductions in company costs, which it is on track to execute. Industrial services revenue growth reached 11% following the acquisition of Thompson Industrial Services at the end of the first quarter. As that acquisition further integrates, Clean Harbors expects further savings on labor and more opportunities for cross-selling.
- Environmental solutions: Clean Harbors achieved record revenue through its service business in the second quarter as environmental solutions yielded a 13% increase in adjusted EBITDA year over year. Clean Harbors co-CEO Eric Gerstenberg said as the segment continues to grow, it could reach a margin of 30%. Recycling and disposal supported environmental solutions’ growth, as landfill pricing increased 21%.
- PFAS: Clean Harbors expects strong growth in its PFAS remediation business following a Department of Defense announcement in July that the agency was likely going to resume PFAS incineration. Clean Harbors reported growing customer interest in its PFAS remediation business, which accounts for $40 million to $50 million in opportunity this year, co-CEO Michael Battles said on the call. Battles said the DOD announcement validates a study Clean Harbors released late last year finding its incinerators can destroy more than 99% of PFAS compounds from waste streams. It expects much of the growth in PFAS-related business to occur in 2024 and later, after the U.S. EPA updates its guidance on handling the materials.
- Incinerators: Clean Harbors improved its incinerator utilization to 84% from 80% the previous quarter. That rate is still down year over year, however, due to a higher number of maintenance days. The company’s average incineration price rose 8% in the second quarter. Looking ahead, Gerstenberg said the incinerator business continues to have a strong backlog that it will work through in the latter half of the year. Clean Harbors is also on track to complete its new incinerator in Kimball, Nebraska, by early 2025, spending $85 million to $90 million on the project this year.
- Workforce: Clean Harbors posted its best second quarter yet for safety, with a total recordable incident rate of 0.68. Gerstenberg acknowledged challenges posed by record-breaking temperatures this summer, noting the company was “focused on monitoring temperature and hydration.” Direct labor turnover was also down 200 basis points from the beginning of the year and 500 basis points year-over-year, Battles said. “That investment that we’ve made in people and in our organization has a material impact on our margins,” he noted.
