By the numbers
Q1 net income: $197.8M
Up 9.7% year over year
- Outlook: Waste Connections CEO Ron Mittelstaedt, who recently returned to the top job after serving as executive chairman for nearly four years, expressed confidence in the company’s outlook despite Q1 volume challenges. While the macroeconomic outlook remains uncertain, CFO Mary Anne Whitney said in a morning earnings call that the company is well-positioned to increase core price by an estimated 9.5% this year, with more than 85% of that already locked in or specified via contractual indexes.
- Pricing: Total pricing for Q1 was up by 11.8%, including fuel surcharges. This ranged from 8% in the company’s more exclusive Western markets to 13.5% in competitive markets. Whitney noted customer churn has occurred as a result, which she described as unsurprising.
- Volumes: Overall volumes were down 1.3% in Q1, due in part to West Coast weather events that included more than a dozen atmospheric rivers around California. This was partially offset by higher hurricane cleanup volumes in Florida. March was a tougher month for volumes overall, but April has shown small signs of improvement and the company expects volumes to be relatively flat for 2023. Though in industrial volumes, Whitney said the company is “seeing signs of a slowdown.”
- Inflation: Mittelstaedt said the company is seeing “some slowing of cost inflation,” with Whitney noting internal inflation started around 8% this year and has moderated closer to 6%. Labor turnover declined around 10% between Q4 and Q1, and job postings were down by 6%, but Mittelstaedt said the situation is still “well above historical and our expectations.” Outside repair costs are still running around 50-60% higher than normal, due to ongoing delays in replacement truck deliveries.
- Fleet: When asked about federal or state fleet emissions policies, Mittelstaedt said in some cases he felt “the legislation is a bit ahead of the product development” — and it could take decades to scale up electric or hydrogen trucks — but it can also create opportunities. “It levels the playing field with less well-capitalized companies,” he said. “And it actually turns that into acquisition opportunities. So we like the regulation as long as it’s uniform federally or within an existing state."
- M&A: Mittelstaedt said “it is reasonable for us to expect an above average year of deal activity,” with the potential for many transactions to close in late Q3 or during Q4. In response to a question about divestitures, referring to GFL Environmental’s ongoing process, Mittelstaedt said “they were not assets that at the price or even a price substantially lower we found attractive or fitting our model.”
- Recycling: Q1 revenue was $31.3 million, coming in lower than revenues from the company’s E&P and intermodal transfer businesses. Commodity pricing is not currently expected to see a notable change, with OCC values averaging around $60 per ton in Q1.
- Guidance: Waste Connections reaffirmed its annual guidance, given incremental improvements in pricing visibility, labor availability and regional weather patterns. The company projects revenue of approximately $2 billion in Q2, with net income of $228.3 million.
- Looking ahead: Mittelstaedt reiterated recent comments about returning to help grow the company to $10 billion in revenue through talent development and other long-term planning. The company recently added a Mid-South region to its structure as part of a process that considered waste flows, the regulatory landscape and acquisition opportunities for the next five-plus years. “We are executing on a playbook that has served us well over the past quarter century, and looking ahead to the next 25 years,” he said.
