There are several stocks with huge potential that investors might miss, and Casella Waste Systems Inc. (CWST, Financial) is one of them. The company has posted excellent fourth-quarter and full-year 2016 results, including a 2.69% increase in total revenues. For fiscal 2016, total revenues increased 3.39%.
Casella Waste Systems provides solid waste management services consisting of collection, transfer, disposal and recycling services in the Northeastern U.S. and parts of Canada. Eastern and Western regions are the company’s two regional operating segments. Casella provides services to residential, commercial, industrial and municipal customers.
As of March, the company owned and operated 32 solid waste collection operations, 18 recycling facilities, 10 disposal facilities (including nine Subtitle D landfills and one landfill permitted to accept construction and demolition materials), four landfill gas-to-energy facilities and 46 transfer stations.
Strong fourth-quarter results
On March 1, the Rutland, Vermont-based company reported financial results for its fourth quarter and full fiscal year ended Dec. 31, 2016. The company’s total revenues increased 2.69% to $143.79 million, compared to $140.02 million for the comparable prior-year period. Revenues from solid waste operations (includes collection, disposal, power generation and processing) decreased 0.73% to $104.42 million, compared to $105.19 million for the year ago quarter. On the other hand, revenues from organics, customer solutions and recycling increased 7.36% to $10.21 million, 5.06% to $14.12 million and 26.68% to $15.05 million.
Gross profit for the reported quarter increased 5.56% to $46.23 million compared to $43.63 million in the prior-year period. The gross profit margin increased 32.15% from 31.16% in the same period last year.
Casella Waste’s operating income increased 112.76% to $10 million compared to $4.7 million in the year-ago quarter. Operating income as a percentage of total revenues increased 6.95% from 3.36% in the same period last year. Adjusted operating income for the reported quarter was $10.9 million, compared to $8.15 million.
Net loss increased 70.51% to $11.97 million, compared to $7.02 million for the year ago quarter. On the other hand, adjusted net income was $1.94 million, or 5 cents per diluted share, compared to a net loss of $1.62 million for the comparable prior year period. Adjusted net income as a percentage of total revenues for the reported quarter was 1.35%. Adjusted EBITDA increased 5.91% to $29.4 million compared to $27.76 million in the year-ago quarter.
Casella Waste’s cost of operations increased 1.21% to $97.56 million compared to $96.39 million. On the other hand, cost of operations as a percentage of total revenues decreased to 67.85% compared to 68.84% in the prior-year period. General and administrative expenses, net interest expense, total growth and replacement capital expenditures and net cash flow from operating activities for the reported quarter decreased 3.21% to $19.91 million, 7.91% to $9.2 million, 11.6% to $16.76 million and 18.74% to $24.36 million compared to $20.57 million, $9.99 million, $18.96 million and $29.98 million in the same period last year.
Casella Waste ended the quarter with cash and cash equivalents of $2.54 million, an increase of 9.96%, compared to $2.31 million in the year-ago quarter. Long-term debt and capital leases, less current maturities decreased 0.4% to $503.96 million, compared to $505.98 million for the comparable prior-year period.
Attributes of the quarter
Total revenues increased primarily due to robust collection, disposal and recycling commodity pricing, the rollover impact from the acquisition of three transfer stations in the second quarter, and higher volumes in Casella Waste’s organics and customer solutions lines of business. Adjusted EBITDA increased chiefly due to enhanced performance in the company's collection, recycling, organics and customer solutions lines of business.
Fiscal 2016 results overview
The following chart shows financial results for fiscal 2016.
| Metrics | Fiscal 2016 | Fiscal 2015 | % change |
| Total revenues | $565.03 million | $546.5 million | 3.39% |
| Solid waste operation revenues | $416.05 million | $407.69 million | 2.05% |
| Organic revenues | $41.59 million | $39.13 million | 6.29% |
| Revenues from customer solutions | $54.48 million | $53.33 million | 2.16% |
| Revenues from recycling | $52.91 million | $46.34 million | 14.18% |
| Gross profit | $183.06 million | $163.88 million | 11.7% |
| Operating income | $44.94 million | $31.87 million | 41.01% |
| Adjusted operating income | $45.84 million | $30.49 million | 50.34% |
| Net Loss | $6.86 million | $11.78 million | (41.76)% |
| Adjusted net income | $7.8 million | $(11.21) million | --- |
| Adjusted EBITDA | $120.60 million | $106.07 million | 13.7% |
| Cost of operations | $381.97 million | $382.61 million | (0.17)% |
| General and administrative expenses | $75.36 million | $72.89 million | 3.39% |
| Net interest expense | $38.65 million | $40.09 million | (3.59)% |
| Total growth and replacement capital expenditures | $54.2 million | $49.99 million | 8.42% |
| Net cash flow from operating activities | $80.43 million | $70.51 million | 14.07% |
Projections
For fiscal 2017, Casella Waste expects an increase in total revenues and adjusted EBITDA in the range of $577 million to $587 million and $124 million to $128 million. Additionally, the company expects a normalized free cash flow in the range of $32 million to $36 million.
The company further assumes that its solid waste operation revenues will be in the range of 1.0% to 3.3% with price growth from 2.5% to 3.5%. Revenues from recycling business and other segments will be in the range of 10.0% to 15.0% and 2.0% to 3.0%.
To drive down capital expenditure, Casella Waste has implemented a disciplined capital strategy and expects capital expenditures for fiscal 2017 in the range of $55 million to $59 million, which is 9.5% to 10.1% of calendar year 2017 revenues.
Growth strategies
To increase free cash flow and to reduce debt leverage, Casella Waste has taken the following steps.
- Increasing landfill returns: The company plans to increase pricing more than 350bps per year in excess of inflation through calendar year end 2018.
- Driving additional profitability in collection operations: Casella Waste plans to recover collection margins by more than 80 to 120bps per year through calendar year end 2018.
- Creating incremental value through resource solutions.
- Improving balance sheet and reducing risk.
On a concluding note
Overall, Casella Waste is a rock-solid company with a strong balance sheet, a proven business model and an experienced management team. The company is utilizing its free cash flow primarily to repay debt and is focused on improving free cash flow. Finally, with the recent quarterly release, the company is aiming for a better future and is set to deliver greater shareholder returns.
Disclosure: I do not hold any position in the company.
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