Waste Connections reports more than $2B in revenue in Q3

Despite unexpected landfill costs at two sites and poor revenue from recycled commodities, Waste Connections has reported revenue of $2.065 billion during the third quarter, up from $1.88 billion during the third quarter of 2022.

“During the quarter, we overcame elevated levels of risk-related expenses and other lagging effects of higher employee turnover in prior periods, as well as site-specific incremental operating expenses at one of our landfills in California,” Waste Connections President and CEO Ronald J. Mittelstaedt says.

The Woodlands, Texas-based company reports about $663 million in earnings before interest, taxes, depreciation and amortization (EBITDA) and an adjusted EBITDA margin of 32.5 percent. Mittelstaedt told investors during an earnings call that the increase is due to price-led organic growth in solid waste, reflecting a price cost spread of 250 basis points.

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The $2.065 billion in revenue for the quarter is up 9.8 percent from the same period last year. The company reports an adjusted free cash flow of $969.3 billion through Sept. 30.

However, Mittelstaedt said the company has endured about $15 million in headwinds.

“First, [there was] an increase of approximately $9 million to already inflated risk-related expenses,” he said. “This development was associated with prior period activity and reflects the higher safety incident rates that accompanied the increased employee turnover in recent years, a reminder that risk is a lagging indicator as claims develop while turnover is a leading indicator. As we drive down turnover, risk expense will improve along with claim frequency and severity.”

On that front, he says things are improving for the company. Employee turnover is down 20 percent from its peak in 2022, and open positions are down 30 percent.

“We’re excited about our progress to date, and we look forward to seeing continued improvement as we enter 2024 when we should realize the lagging effects from improving retention rates during 2023 and into 2024,” Mittelstaedt said.

Two landfill incidents are creating some unanticipated expenses for difficulties for the company, as well, he said.

“We absorbed over $6 million in additional operating expenses at our Chiquita Canyon Landfill in Southern California, where we are managing and working to resolve what is characterized as an elevated temperature landfill or ETLF event,” he says, adding that additional costs—perhaps more than $10 million—associated with increasing leachate generation could hit the company during the fourth quarter.

The second landfill incident was a slope collapse at the company’s Seabreeze Landfill in Angleton, Texas, which Mittelstaedt says forced the company to temporarily close the facility.

“The impact of lost revenue and increased expenses at this site in Q4 are expected to be in the range of $5 million to $10 million depending on how quickly we are able to reopen the site,” he said. “We currently expect to reopen the site in mid-December. We consider both of these landfill issues to be unusual, site-specific and non-recurring in nature, although differing in duration.”

In terms of volume, Mary Anne Whitney said the company experienced a loss of 1.9 percent, but that was due to “opportunistic shedding of low-quality accounts.”

Mittelstaedt says the company delivered a core price of 8.8 percent and a total price of 7.7 percent, which was aided by lower fuel costs.

Whitney says those reduced fuel prices helped on the commodity side, as well, which continues to be a “drag” on revenue.

“Beyond solid waste, commodity impacts were a wash,” she says. “[The company experienced] 20 basis points benefit from higher [exploration and production] waste activity, plus another 20 basis points from lower fuel rates which were offset by recycled commodity values, which although improving, were still a 40-basis point drag to margins.”

Mittelstaedt said the merger and acquisition (M&A) “pipeline remains quite robust across our footprint.” Through the end of the third quarter, he says the company closed on $170 million worth of revenue.

“We continue to have capacity for outsized acquisition activity while we fund our differentiated growth strategy, including our sustainability-related projects, and expand our return to capital to shareholders,” he said.

Although tentative, Whitney projects revenue in the fourth quarter to be about $2.04 billion with a core price of “about 8.5 percent.”