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Waste Connections Isn't Getting Equal Credit For The Current Environment

Veni Vidi Emi profile picture
Veni Vidi Emi


  • Waste operators like Waste Management and Republic Services reported great figures that imply an enormously robust economy and waste ecosystem.
  • Waste Connections had less optically appealing financial statements due to its recent acquisition activities. In truth, the company shed the revenue many quarters ago. Real-time markets are doing great.
  • The two other stocks have each jumped +6% and +10% on recent earnings, but Waste Connections got little credit for being in the exact same environment.
  • A few unprofitable contracts are still being divested, but once that is completed, Waste Connections will grow at the pace of peers again, although with superior markets and management.
  • Waste Connections is expecting a monster 2019, and its acquisition pipeline is strong. The company should be receiving the same treatment as its peers.

In my article on the volume, price, yield, and churn figures from the Q2-18 reports from Waste Management (WM) and Republic Services (RSG), I covered how the recent figures underline how robust and strong the current waste environment is. Low customer churn and high pricing indicates a stable outlook, while volume trends were more moderate. Waste operators are able to pass on wage increases to customers consistently, while expanding margins and growing sales on volume. Nearly everything but residential is bounding ahead.

As a result of these stable and strong results, the stocks of most waste operators jumped on the good news from WM and RSG.

Each posted volume and price trends that resulted in sales growth in excess of 2.5% organically, in addition to an overflowing amount of acquisition spending and capital return.

On the other hand, Waste Connections (NYSE:WCN) "only" grew 4%.

Optically, the reason was quite simple. Whereas peers had organic volume growth of ~1% on average and total organic sales growth of approximately 2.8-4%, Waste Connections had volume growth of -1.5%. This also led to total organic growth (on great pricing, 3.6% yield) sitting at roughly 2.0%.

Volume Fully Expected and Underlying Growth Moderate

The interesting point (to me, at least) was that the negative volume was quite obviously temporary. Divestitures accounted for roughly 85 basis points, and a few other temporary comparison issues should sunset pre-2019.

Waste Connections expects sequential improvement of 50-100 basis points, but for me, the real interest is in its 2019 guidance and the misinterpretation of the company's corporate strategy.

The management team of Waste Connections has largely been competent and consists of seasoned people. Let us break down the 2019 guidance comment from Ron Mittelstaedt, CEO of WCN, given to a Goldman analyst:

So what we said on 2019 is

This article was written by

Veni Vidi Emi profile picture
"I came, I saw, I bought" - - - - - - - - - - - - -Currently inactive due to work and other responsibilities.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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