First Quarter Earnings Roundup

Date: May 17, 2020

Source: Trends

The big publicly traded waste companies announced first quarter earnings amid the global COVID-19 pandemic, which was collectively described as "unprecedented." For most companies though, the quarter would have been stellar except that by April waste volumes declined with the contraction of the overall economy, and at an increasing rate, at least until mid-month, after which some improvement was noted. For industry leader Waste Management, landfill tonnages were down 20 percent, commercial collection fell by 16 percent. Meanwhile, quarantine measures drove up residential waste volumes anywhere from 15-25 percent which tended to hurt profits as most of this business is service based, not weight based resulting in higher disposal costs that cannot be passed on to the customer.

Companies cut costs by cutting 40-60 percent of overtime, reducing discretionary expenses, idled trucks, optimized, or eliminated routes, while capital spending budgets were typically cut 10-20 percent. Selling, General and Administrative expense (SG&A) savings typically included reduced travel and entertainment expense (T&E) and lower incentive accruals.

Even with cost savings measures, most of the companies saw between 100 and as much as 200-basis point impact on profit margins due to the pandemic. Amid the uncertainty all the companies suspended 2020 guidance. On a positive note however, company managements said they see some improvement or at least felt that April was perhaps the bottom of the economic decline. That afforded them some confidence that industry price discipline will remain largely intact. In some cases, the companies had moved contracts away from being based on CPI to waste-related or 3 percent escalators giving them more insulation from cost increases. Similarly, some had modified recycling contracts over the past year to a fee-for-service basis, which eliminates some of the upside from recent improvement in OCC pricing but more importantly, protects them from declining commodity pricing elsewhere.