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Covanta 4Q16 results ?3

09:36 16-Feb-17


The Covanta conference call has just concluded.  To me, the most interesting part of the Covanta conference call was the commissioning of a new type of facility: a Total Ash Processing system, which should start operation next year.  An update on the financial impact should be coming in a matter of months.  To start, the facility should process 10% of Covanta's total ash with improved metal recovery and beneficial use.  This is a big step forward that I've been looking forward to for some time.

Recovered metals volume already grew 10%, and Fairless Hills helped optimize prices, as I've been anticipating.  Metals contributed 5% overall, and pricing has been accelerating in recent months with HMS#1 @$260.  Management is estimating $250 for 2017, but the strong dollar may be an issue.  Costs for improving processing masked some of the benefits, but Covanta is set to double ferrous metal realized revenue even with flat pricing.

The issues at plants were also discussed.  Fires are part of the business, and the events at both Montgomery County and Fairfax were insured, though payments may create short-term dip in recovery in the financial statements.  Montgomery returned to service in 9 days, whereas Fairfax will be down for a couple of months, though it was scheduled to e down for maintenance anyway.  Investment to improve operations is included in forecast and not material.  Management is looking at operational changes and new technology to improve operations.

Overall, 2017 should show modest improvement, with more to come next year.  Accounting changes to include international operations, like Dublin, are now in place.  Without explicitly committing to it, management hinted that the dividend should be able to increase in 2018, after Dublin comes online towards the end of this year contributing $5-10M of free cash flow.  A continued commodities recovery would give additional room.  This quarter shows that challenges are not gone yet, but they are starting to fall away.  I maintain my viewpoint that patience will continue to be rewarded.

On 02/15/2017 11:45 PM, Esekla wrote:

Covanta has just reported (at 11:30pm EST) the financial results for its fourth quarter:

  • EPS of 8 cents, misses by a penny
  • on revenue of $457M, which beats by $32M
  • guidance of $400-440M in Adjusted EBITDA, which beats by $9M at the midpoint

The main hit to the EPS seems to have been increased maintenance operating expense, and more than half of that is due to "a $49 million increase in same store other plant operating expenses due to higher employee incentive compensation, same store cost escalation, and higher expenses relating to the commencement of operations at our centralized metals processing facility."  The metals processing part is actually potentially encouraging.  More, if warranted, after the conference call tomorrow morning.