Waste Connections posts strong Q1, predicts 'M&A bonanza' if tax reform passes
- Waste Connections reported $1.09 billion in revenue for Q1 of 2017, nearly double what it posted during the same period in 2016 due to the Progressive Waste Solutions merger, and its fourth stock split in history. This was driven by 4.7% price and volume growth, a 15% increase in landfill tonnage, positive E&P growth and higher commodity prices for recyclables.
- The company has spent $225 million on acquisitions so far this year, the largest being Groot Industries in Illinois, and sees potential for much more. "The M&A environment and the pipeline I would consider very robust," said CEO Ron Mittelstaedt during the earnings call. "We've said since the presidential change and a potential tax change that there is going to be a window of opportunity if tax change occurs that is going to be I think an M&A bonanza not just in our industry, but in many..." He noted that this might also be driven by a desire to make deals before a new president with different policies is elected.
- Mittelstaedt declined to elaborate on the company's opposition to permit details at the Chiquita Canyon Landfill in Los Angeles, aside from saying he didn't expect a resolution until June or July. Other than Chiquita, none of the company's landfills are expected to face closure or expansion needs for the next five to seven years. He was not asked for an update about the ongoing local debate regarding future closure of the Seneca Meadows Landfill in New York.
This marks yet another good quarter for the third-largest player in North America and they are projecting more good news for Q2. Like other competitors have noted, commodity prices are still too volatile to be trusted, but a growing economy has been beneficial overall. Despite missing out on recent contracts in Washington, Missouri and possibly California, Waste Connections sees plenty of opportunity, particularly in burgeoning Western markets.
"We've been surprised at the magnitude of the continued recovery quite honestly," said Mittelstaedt. "You're seeing robust economic times right now on the West Coast and you're seeing waste generation at virtually all-time highs in many markets throughout the West."
CFO Worthing Jackman noted that action from Washington, such as tax reform or an infrastructure plan, could put the economy "in another gear" and further extend recovery from the economic downturn. Though another commonly discussed legislative issue, immigration reform, was seen as having a potentially limiting effect on an already tight labor market. While hiring issues haven't affected the company yet they did mention the growing driver shortage as a potential factor.
Waste Connections also reported benefits from integrating Progressive and Groot into its existing safety culture, both in terms of employee wellbeing and efficiency. Mittelstaedt noted during the previous quarterly call that Progressive's culture was "unhealthy" and turnover was high. Accident and injuries have now decreased by 60% in former Progressive assets and 30% in assets from Groot, which was said to be a much smoother transition. As Waste Connections works to divest an estimated $50 million in Progressive revenue that is considered "unsafe or unprofitable to service," they're on track to be in a good position by the time that acquisition's one-year anniversary comes around in June.
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