Covanta reports on Q2 earnings, acquisitions, project activity

By Anna Simet | July 28, 2015

While Covanta Energy reported flat waste and service revenues and decreases in energy and recycled metals revenue, the company reported strong operational performance in its core business, achieved record quarterly special waste revenue, and provided several updates on acquisition and commissioning activities during its Q2 2015 earnings call.

The company reported total revenues decreased by $24 million to $408 million from $432 million in the same period of 2014, primarily as a result of lower market pricing for metals and energy. Waste and service revenues saw a $2 million decline related to waste volumes, which was offset by $2 million from higher pricing. Energy revenues decreased by $8 million, driven by an $8 million decline related to lower energy market prices, which was partially offset by $1 million due to higher energy production. In addition, recycled metals revenues decreased by $9 million, driven by a $10 million decline from lower recycled metals pricing, partially offset by $1 million from higher volume of recovered metals.

Q2 adjusted EBITDA was $83 million and free cash flow was a negative $40 million.

“Overall, we had another strong quarter operationally,” said President and CEO Stephen Jones, who provided an update on the company’s acquisition of Advanced Waste Services, assets that he said are located in attractive markets in the Midwest and have operations that overlap strategically with Covanta’s facilities in Indiana, New York and Pennsylvania. “These assets will allow us to continue to drive special waste volumes into our [energy-from-waste (EfW)] facilities, but they also expand our capabilities in processing and recycling different waste streams and allow us to offer our clients new complementary environmental solutions and services,” he said.

Also this quarter, Covanta finalized an agreement to exchange its existing China assets for an equity stake in Sanfeng Environment, “one of the largest energy-from-waste players in that market, and a subsequent sale of 90 percent of that stake, for approximately $110 million in cash…note that we continue to be interested in the China market, where energy-from-waste development will far exceed the rest of the world combined over the next several years.”

Covanta continues to face challenges in the commissioning and final start-up of commercial operations at the company’s $255 million, 17.5-MW waste-to-energy project in Ontario, according to Jones. He said the Durham-York facility has been combusting waste since February, and producing power intermittently. “However, we've encountered certain operational challenges that so far have prevented us from bringing the plant up to the optimal performance levels that we expect to achieve during full commercial operations.”

Jones said the plant was constructed with highly advanced design features for both energy efficiency and air pollution control, so given the complexity of the systems involved, adjustments related to these systems have been minor in the scheme of things. “But they've taken some additional time here…the key is that we believe we've identified all the issues and have a clear plan to address them.”

He added that the issues Covanta is currently working through at the facility are not necessarily unique for such a facility, and said it is the most advanced plant of its kind in North America. “The testing and commissioning process that we're now in is intended to identify and work out these types of things to ensure that the facility runs optimally, as it commences its operating life. Think of it as the shakeout period for the facility,” he said.

He added that construction of Covanta’s Dublin, Ireland, project, a 600,000-metric-ton, 58-MW EfW facility is on schedule, both from a timeline and budget standpoint and making “tremendous progress.”