By the numbers
Q3 net income: $229M
Down 3.3% year over year
Annualized revenue from 2023 acquisitions: $250 million
Includes deals signed or closed to date in 2023
- Financial picture: During an earnings call on Thursday, Waste Connections CEO Ron Mittelstaedt said he was “extremely pleased by the durability of our financial and operating results.” He attributed the favorable 32.5% adjusted earnings before interest, taxes, depreciation and amortization to the company’s “solid operational execution.” This is despite facing $15 million in “unforeseen headwinds” in the quarter related to safety incident rates and expenses to mitigate landfill-related issues.
- Chiquita Canyon landfill updates: Waste Connections spent $6 million in the quarter to mitigate a “landfill reaction” at the Chiquita Canyon landfill near Los Angeles, where higher than normal levels of dimethyl sulfide and leachate have prompted numerous odor complaints from nearby residents. Mitigation costs include installing more than 50 new wells to pump out leachate and gas to reverse the high temperatures causing the reaction, Mittelstaedt said. The company expects related expenses to expand in Q4 to over $10 million, mainly for leachate management.
- Seabreeze Landfill updates: A recent slope failure at the Seabreeze Landfill in Texas means the company is redirecting waste to “alternative disposal sites” while they fix the issue. Waste Connections aims to reopen the landfill in December, but the impact of lost revenue and increased expenses at the facility in Q4 could be between $5 million and 10 million, Mittelstaedt said. No one was hurt in the slope failure incident, which Mittestaedt characterized as a company error. “We could have prevented that,” he said.
- Employee retention: Waste Connections reported $9 million in risk-related expenses due to higher safety incident rates, an issue Mittelstaedt said he plans to remedy through ongoing employee retention and training plans. “As we drive down turnover risk, expenses will improve, along with claim frequency and severity,” he said. Recent changes include revamping recruiting strategies and doubling training for frontline employees. Waste Connections also started a training academy pilot program for drivers and is “coordinating efforts” for a diesel technician school offering.
- Volume: Solid waste volume declined 1.9%, which CFO Mary Anne Whitney said was due partly to non-renewal of certain municipal contracts. On the commercial side, Waste Connections continues to carry out “opportunistic shedding of lower quality accounts,” she said. Landfill tons were up 5% year over year, largely driven by higher special waste volume, which was up 17% year over year due to completion of special waste projects that had been delayed in Q2 or had been originally scheduled for Q4.
- Commodities: Revenues from recovered commodities were down 27% year over year in Q3 and down 6% from last quarter, which is “about as expected due to a sharp decline in the value of plastics during the quarter,” Whitney said. That decline was partially offset by improvements in OCC prices, which averaged $88 per ton in the quarter. RIN values, along with lower fuel rates, have also helped offset commodity price declines.
- Acquisitions: Acquisition activity is expected to continue through the end of the year, Mittelstaedt said. Last quarter, Waste Connections announced its acquisition of Arrowhead Environmental, a deal worth $100 million in annualized revenue. This year, Waste Connections has closed on deals worth about $170 million in annualized revenue. Mittelstaedt said deals worth an additional $80 million in revenue are “already signed, and in some cases awaiting regulatory consent,” and are expected to close by the end of the year or in early 2024.
- Outlook for Q4: Whitney estimates Q4 revenue will be about $2.04 billion, with core price at about 8.5%. Recycled commodity values and RINs are expected to stay flat, while adjusted EBITDA is predicted to be about $658 million, about 32.3% of revenue.
