Covanta this week announced strong first quarter results in the wake of the COVID-19 pandemic. Covanta CEO Michael Ranger also presented the results of the company’s strategic review, which creates a plan for how Covanta can unlock additional value, a plan that is currently being implemented.
Here are some of the key results for the company in the first quarter of 2021:
- Revenue of $ 498 million, up 6.4% from $ 468 million a year ago
- Net cash from operating activities of $ 52 million, down 14.8% from $ 61 million a year ago
- Adjusted EBITDA of $ 106 million, up 9.3% from $ 97 million a year ago
- Free cash flow of $ 19 million, up 5.5% from $ 18 million a year ago
- Net income of $ 2 million, up from – $ 32 million a year ago
- Earnings per share of $ 0.02, up from –$ 0.24 a year ago
Key drivers of strong first quarter operating results included peak waste to energy (WtE) price growth of 4% year-over-year, as well as significant increases in ferrous metal prices. and non-ferrous due to growing demand and tight market supply.
Covanta CFO Derek Veenhof also noted during the company’s quarterly earnings call that the revenue increases were also due to rising energy prices and new revenue from wholesale charging contracts. , in addition to the very good performance of environmental activities due to improved volumes and cost control.
The company pointed out that while the rise in commodity market prices directly contributed to improving its EBITDA line and increasing metal recovery (which provided significant value to its metals business recovered), it also expects an average reversion in metal prices in the future.
The company also noted that their “very good operational performance” was in part due to the resumption of economic growth in the United States and that “at the macro level, they don’t see these long-term trends changing.” The US Bureau of Economic Analysis on Thursday released its advanced estimate of first-quarter GDP growth at an annual rate of 6.4%.
Amid the weather conditions in the first quarter, the company noted that waste input and power generation was lower than last year and the company plans to catch up in the coming quarters.
As part of the strategic review, Ranger spoke about several key new initiatives, including cost containment, capital allocation and overhead rationalization.
Ranger spoke of the increased focus on the company’s new fleet of waste power generation plants in UK markets as part of its environmental solutions business, which is less capital intensive as it is more focused on sales and logistics. The CEO gave more details on the expansion of his operational activities in the UK, including his new project at Rookery, one of the best markets in the world in terms of price and political support, which is expected to be put into action. service in the first quarter of next year.
The CEO also discussed plans to improve the value of contracts with 18 publicly-owned waste-to-energy plants through reassessments and expirations with the aim of improving the cash flow contribution of financially challenging operations and even terminate certain public sector operating contracts.
Another strategic initiative includes launching an overhead rationalization program that is expected to generate $ 30 million in annual savings by 2023, which is also expected to support one-time, short-term severance packages.
The company also improved its earnings forecast due to improved operating results: the company revised its 2021 Adjusted EBITDA forecast to $ 460-480 million from $ 435 million to $ 465 million and its forecast of free cash flow at $ 125-155 million from $ 100 to $ 140 million. The company has also established a long-term financial outlook aimed at achieving adjusted EBITDA of $ 600 million and free cash flow of $ 250 million by 2024.
Regarding balance sheet leverage, the company announced a plan to reduce debt to adjusted EBITDA to five times by the end of 2022 through various capital allocation decisions. There are some other elements of the strategic review that could improve this timeline as well, company management noted.
Finally, the management team said their improved results were a “credit to the resilience and people of the business and the essential nature of our services.”