2018 Earnings

Q4 Earnings

Waste Connections "finished on a high note," according to the company's 2018 earnings report, with Q4 revenue about $37 million more than expected due to a variety of factors.

The company touted 4.8% pricing growth for Q4, "our highest reported price in a decade," and ongoing strength from pricing discipline that offset any headwinds from recycling or other factors. Piling on the accolades during the quarterly earnings call, President Worthing Jackman concluded his introduction by saying "2018 was truly a remarkable year, considering the challenges that we overcame and the results we delivered to drive our 15th consecutive year of positive shareholder returns."

CEO Ron Mittelstaedt was absent from the call "due to an immediate family member's medical matter."

Major M&A 

Jackman said Waste Connections had essentially completed four years worth of acquisitions in the past two years. The fair net value of the 20 companies it picked up is estimated at $1.032 billion. The company's year-end American Disposal deal was the biggest, with an estimated $175 million in annual revenue. 

CFO Mary Anne Whitney said the company's philosophy is that such deals "continue to be our highest and best use of cash." With a much more elevated pace and scale of acquisitions than any of its publicly-traded peers, Waste Connections appears poised for even more expansion.

• Based on a pipeline that continues to be "robust," Jackman said, "We believe 2019 could be another year of outsized acquisition activity." Current options range from small tuck-ins with collection companies to larger vertically-integrated players.
• Jackman said this pace is sustainable due to the companies being targeted. "These are some gold-plated companies that were acquired in 2018 with fantastic management teams," he said. "It's not like we buy a business and all of a sudden start believing that we can jam them with e-mails and jam them with requests. What we do is we flood them with people to support and grow and develop the business and integrate the business immediately, not the other way around."
• Asked whether increased competition from private equity interests could limit deal activity, Jackman said, "Our view has always been you can never recover from overpaying ... We're taking the long view here, as we know companies that pursue growth for growth's sake don't end well. The debt could get paid off, and the banks are safe, but the equity is always at risk."

Sustainability & Policy

Recycling revenue (excluding acquisitions) came in at $20 million for Q4, down by close to 30% YoY. For 2018, Waste Connections reported recycling revenues of $92.63 million as compared to $161.73 million the year before. Jackman said the company expects commodity prices to remain mostly level through 2019. The more intriguing details around sustainability came from questions about two hot button issues in the industry.

• One analyst asked whether the company had any exposure to growing attitudes against plastic waste and landfills. Jackman recognized that source-separation is a growing trend, and said that Waste Connections supports it in theory, but also cautioned that recycling or reuse (perhaps a nod to the new Loop pilot) often comes with a higher cost.
• "I'd say in the near-term, easily looking out over the next decade or more, I don't think you'd see a notable impact in anything within our business. Now are we always looking at new technologies to improve our processing capabilities in our facilities? Absolutely, but that's evolutionary — it's not revolutionary," said Jackman.
• The question of franchising also came up. Waste Connections submitted a bid in Los Angeles, but wasn't selected as a finalist. In New York, where it's currently the only national company in the market, the company has started to become more vocally supportive of a potential franchise system.
• "It's just something that makes sense in that tight operating environment, dozens of trucks will be crisscrossing each other on crowded streets at all times of the day and the risk profile is just too high for many operators," said Jackman. "And so it makes sense for New York to follow on the heels of LA, and how New York structures it in the end, it still remains to be seen. But we don't see this as a trend in other markets."

Looking Ahead

• On labor, an ongoing industry challenge, the company said turnover remains steady in the 25-27% range. Safety incident rates continued to decrease in 2018, including among new acquisitions, and an increased 401(k) matching plan was described as one way to retain employees.
• The company expects pricing growth to keep averaging around 4.5%, but isn't necessarily banking on volume growth at similar levels. "We believe that our 2018 results are indicative of the effectiveness of a price-led organic growth strategy, and, as noted earlier, we will continue to view any increases in underlying volumes as upside," said Jackman.
• For Q1 of 2019, Waste Connections is projecting approximately $1.4 billion in revenue. The projection for 2019 overall is up to $5.310 billion, excluding any potential acquisitions.