Waste Connections Inc. Earnings: Margins Shrink as Net Income Drops

Rising costs hurt Waste Connections Inc. (NYSE:WCN) in the first quarter as profit dropped from a year earlier. Waste Connections is an integrated solid waste services company that provides solid waste collection, transfer, disposal and recycling services in mostly secondary markets in the western and southern United States.

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Waste Connections Earnings Cheat Sheet for the First Quarter

Results: Net income for Waste Connections Inc. fell to $31.3 million (27 cents per share) vs. $36.5 million (32 cents per share) a year earlier. This is a decline of 14.3% from the year-earlier quarter.

Revenue: Rose 13.6% to $376.4 million from the year-earlier quarter.

Actual vs. Wall St. Expectations: Waste Connections Inc. reported adjusted net income of 32 cents per share. By that measure, the company fell in line with the mean estimate of 32 cents per share. Analysts were expecting revenue of $374.6 million.

Quoting Management: “We are pleased to kick off our 15th anniversary with first quarter results that once again exceeded the upper end of our revenue and margin expectations. Continuing pricing strength and increased special waste and construction-related disposal volumes helped overcome the negative impact from year-over-year decreases in recycled commodity values, the loss of lower priced disposal volumes at our Chiquita Canyon landfill, and increased fuel costs. More importantly, free cash flow*, the primary driver of value creation, increased over the prior year period and once again exceeded 20% of revenue,” said Ronald J. Mittelstaedt, Chairman and Chief Executive Officer. “Our recent equity offering further strengthened our sector-leading balance sheet, uniquely positioning us for what we believe could be increased acquisition activity over the next 18 to 24 months.”

Key Stats:

Last quarter’s profit decrease ends a four-quarter streak of profit increases. In the fourth quarter of the last fiscal year, net income rose 5% from the year earlier, while the figure increased 13% in the third quarter of the last fiscal year, 46.1% in the second quarter of the last fiscal year and 32.5% in the first quarter of the last fiscal year.

Gross margin shrank 1.1 percentage points to 42.4%. The contraction appeared to be driven by increased costs, which rose 15.8% from the year earlier quarter while revenue rose 13.6%.

Revenue has risen the past four quarters. Revenue increased 13% to $379.8 million in the fourth quarter of the last fiscal year. The figure rose 16.8% in the third quarter of the last fiscal year from the year earlier and climbed 18.1% in the second quarter of the last fiscal year from the year-ago quarter.

The company met estimates last quarter after falling short of forecasts in the previous quarter with net income of 34 cents versus a mean estimate of net income of 35 cents per share.

Looking Forward: The outlook for the company’s results in the upcoming quarter is unfavorable. The average estimate for the second quarter is 39 cents per share, down from 42 cents ninety days ago. At $1.48 per share, the average estimate for the fiscal year has fallen from $1.61 ninety days ago.

(Company fundamentals provided by Xignite Financials. Earnings estimates provided by Zacks)

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