Covanta reports strong first quarter despite challenging weather

By Erin Voegele | April 27, 2015

Covanta Holding Corp. has released first quarter financial results, reporting plant operations and waste volumes were in line with expectations despite challenging weather conditions in the Northeast.

“We had a very strong operating quarter, despite record snowfall and overall difficult conditions in our core Northeast markets, especially in New England,” said Stephen J. Jones, president and CEO of Covanta. “We successfully managed our waste supply and kept the plants running smoothly throughout the quarter. We’ve also had a great start to our heavy maintenance outage season and are realizing the benefits of the efficiency initiatives implemented last year. While commodity pricing remains a challenge, our team is doing a great job on multiple fronts to mitigate those impacts.”

During an investor call to discuss the quarterly results, Jones explained that operationally the quarter was strong. He stressed the plants ran well and were full of waste despite record snowfalls experienced in some of the company’s core markets. While there were some additional costs associate with that harsh weather, he said the benefits of the company’s operational efficiency programs in the quarter more than offset those costs.

Jones said energy-from-waste (EfW) revenue was flat when compared to the first quarter of the prior year. “Last year’s strong first quarter market pricing made for a challenging year-over-year comp, but this impact was nearly offset by the increase in energy revenue share from contract transitions, the Pinellas contract and the impact from our hedges,” he said. “Revenue was flat compared with 2014 from a volume standpoint. So basically, overall energy production was slightly higher, but the revenue associated with that generation was slightly lower due to mix.”

Jones spoke briefly about potential opportunities to expand Covanta’s presence in the EfW industry. He noted that there are a number of countries where EfW has strong regulatory support and where operating expertise would help create value. “While there is nothing specific to discuss today, we're keeping our eyes open for the right opportunities,” he said. “I can confidently say that I see plenty of opportunities that will allow us to protect our base business and achieve growth over the long-term.”

Covanta reported revenue of $383 million for the quarter, down from $401 million during the same three-month period of 2014. The decrease is attributed to lower construction revenue, as well as lower market pricing for metals and energy. Same store North America EfW revenue decreased by $6 million. While waste and service revenues increased by $6 million, with $4 million related to increased volumes and $2 million from higher pricing, energy revenues decreased by $7 million, driven by a $5 million decline related to lower prices and a $2 million reduction due to volume mix. In addition, recycled metals revenue decreased by $5 million, driven by a $6 million decline from lower recycled metal pricing, partially offset by $1 million from higher volume of recovered metals. Also within North America EfW revenue, Covanta reported contract transitions, including lower debt service revenues, resulted in a decrease of $2 million, while transactions, primarily the commencement of the Pinellas County EfW contract, increased revenue by $3 million.

Net loss for the quarter was $37 million, compared to a net loss of $9 million reported for the first quarter of the previous year. Adjusted EBITDA was $79 million, down from $87 million during the same quarter of 2014, as the benefit of lower plant operating expenses was more than offset by lower energy and metal pricing and the impact of contract transitions. Free cash flow was $16 million for the quarter, compared to $67 million during the first quarter of last year. Adjusted earnings per share was a 13 cent per share loss, compared to a 3 cent per share loss during the same period of 2014. The decrease was driven by lower operating income and higher effective tax rate, partially offset by the elimination of non-cash convertible debt related expense incurred in 2014.