Waste Connections riding high after Q3, still has hope for tax reform
- Waste Connections reported $1.206 billion in revenue for the third quarter of 2017, with 3.8% solid waste price and volume growth, exceeding their outlook. Commercial collection revenue was up 3% from the prior year, roll-off was up 6% and municipal solid waste tonnage was up 5%. Construction and demolition tonnage was down 8% due to new permit limitations at the Chiquita Canyon Landfill in California.
- Despite those restrictions, and some minor effects from the recent hurricanes, Waste Connections is reportedly in a very good place. Even with OCC prices down by more than 55% compared to the third quarter, the company expects that will be offset by gains in other areas when this current quarter is complete. CEO Ron Mittelstaedt also discussed a positive multi-market swap with Republic Services — in which his company left areas in Southeast Texas and Louisiana, in return for two areas in northern Illinois.
- Mittelstaedt mentioned a recent $15 million acquisition in Alaska and others that were currently under letters of intent. He said the company is well-positioned for "above-average" acquisition activity in the near term, with the potential for at least another deal similar to the size of the Groot Industries announcement in January. Waste Connections is also still optimistic about an even more favorable acquisition climate in the future, regardless of what happens with tax reform.
Waste Connections was the only major company to not see a significant drop in stock prices earlier this month following commodity market tightening and other factors. Since then the company has since seen its price rise even higher, along with at least one other top competitor Waste Management, in a sign that these companies may be more insulated from the China import news. Recycling revenue, excluding acquisitions, only accounted for $37 million of the $1.206 billion that Waste Connections pulled in last quarter. Even with a projected $15 million decline in recycling revenue for this quarter, and business in vulnerable Pacific Northwest markets, Mittelstaedt said that money could be made up elsewhere and his company wasn't making major adjustments.
"So you're seeing different things go on, on a very dynamic basis by state and local market, and so we're adjusting to that. So it's one reason you don't go out and make a large recycling investment in this kind of environment when the commodity is just that, a commodity," he said. "And you've got to make sure that before doing that, you know what the playing field for that revenue stream looks like."
As Waste Connections eyes potential acquisition opportunities with revenues ranging from $0.5 million to $200 million, their exposure to recycling commodity prices may play a role. The company is also considering the usual factors of vertical integration, new market entries and multi-year growth opportunities when looking at any potential deal. Like others in the industry, Mittelstatedt is still hopeful about the tax reform conversation leading to a better deal climate one way or another.
"There is a lot of pent-up M&A that has been awaiting tax change, that if tax change happens, and you're going to see elevated activity, because those people believe that there could be a two to three year window before tax change goes the other way again," said Mittelstaedt, referring to the next presidential election. "And if it doesn't change and it is killed, you are also going to see elevated activity, because they know it's as good as it's going to get, and it's only going to get worse."
Politics aside, this is another sign of how the waste industry may be poised for good profits during the Trump administration, due to its business-friendly stance — and a feeling that this may not last forever.
Follow Cole Rosengren on Twitter