Advanced CEO: Business will improve in 2018; recycling prices won't
- Advanced Disposal expects to have another good year, but recycling revenues may not be part of the equation. During the fourth quarter earnings call, CEO Richard Burke said one factor is that domestic mills were driving prices down because they could. "It's having an impact," said Burke, "there's no indicator right now to expect that recycling prices get better in 2018. I'm not sure where the bottom is but I don't – we don't think we're there yet," he said.
- While Advanced won't see tax cut benefits until 2022 because of its net operating losses, at which point its rate is expected to be 27%, executives do believe the policy will lead to economic benefits. "...If consumers have more money to spend, they buy more things, so they generate more waste, right. Same thing for business. If they have more money and they're investing in capital projects and they grow their plants, they hire more people, generates more waste," said Burke.
- Following 14 acquisitions in the first three quarters of 2017, Advanced forecasts it will spend a more "historical norm" of $30-50 million on new deals this year. Tuck-ins remain optimal and CFO Steven Carn described the pipeline as "robust" for a variety of reasons. Though he also didn't rule out larger deals, and said the company could be "real creative about the way we finance it."
As indicated by its numbers, Advanced has had a strong run since going public in 2016, and the company appears confident that will continue. According to Burke, the business grew by more than $100 million last year due to organic growth and the 14 acquisitions.
During the last quarter, volumes were up by almost 3%, thanks to a 9% increase in disposal volumes and growth in commercial and roll-off business. Residential volume also grew for the first time in two years due to the October start of a new contract in Polk County, FL.
Looking ahead into 2018, the company projects revenue will be between $1.545 billion and $1.565 billion. Capital expenditures are expected to be $184-194 million, with construction planned at 19 landfills.
While recycling is still expected to present a headwind, that service makes up an even smaller percentage of overall revenue for Advanced than its larger competitors. Positive projections for solid waste growth, among other factors, are expected to help cancel that out. Burke said the company is now getting an average of $65 less per ton for recyclable material than it did in July 2017, and the goal is to continue pushing contracts to a 50-50 revenue share model.
This less optimistic outlook on recycling tracks with Burke's comments during the third quarter earnings call and follows a range of opinions from his fellow CEOs in recent weeks. While none of the big players derive significant portions of their revenue from recycling, some have more exposure than others and have expressed greater interest in making it work for the right price.
Unlike the three larger companies, Advanced had less to say about its outlook for labor, perhaps because tax cut effects won't be felt initially.
Burke did note that "we were able to also reduce both injury and accident frequency" in 2017 and hiring was particularly difficult for truck mechanics. He estimated that, compared to the 4.1% national unemployment statistic, the rate for qualified mechanics might be closer to 2%. The company is working on certification incentives and trade school recruiting to fill those gaps.
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