Waste Connections, Inc. (WCN) Q4 2018 Earnings Summary

Executive Summary

Q4 2018 delivered above-outlook revenue of $1.262B and solid waste price+volume growth of 4.9%, while adjusted EPS rose 21% YoY to $0.63; adjusted EBITDA was $397.2M (31.5% margin) .
Strength in solid waste pricing and E&P waste activity offset sharp declines in recycled commodity values and cost pressures; management highlighted disciplined execution and acquisition contribution as key drivers .
2019 initial outlook guides to revenue ~$5.310B, adjusted EBITDA ~$1.705B (32.1% margin), net CFO ~$1.525B, and adjusted FCF ~$950M, implying margin expansion of ~30 bps YoY .
Corporate updates around the period included earnings release scheduling and, shortly after Q4, a CEO temporary leave of absence announcement, which investors should monitor for continuity and succession considerations .

What Went Well and What Went Wrong

What Went Well

Price-led growth: solid waste core pricing increased YoY, driving 4.9% price+volume growth in Q4 and exceeding outlook; revenue came in above expectations at $1.262B .
Margin resilience: adjusted EBITDA of $397.2M at 31.5% of revenue despite commodity headwinds; full-year 2018 adjusted EBITDA margin expanded 30 bps YoY to 31.8% .
Acquisition momentum: closed American Disposal in Q4; total annualized acquired revenue >$360M in 2018 with ~$200M rollover contribution expected in 2019, supporting high single-digit revenue growth and margin expansion .
- Quote: “2018 finished on a high note... better than expected solid waste organic growth, E&P waste activity and acquisition contribution... enabled us to overcome the precipitous decline in recycled commodity values and certain cost pressures” — Ronald J. Mittelstaedt, CEO .

What Went Wrong

Recycling headwinds: recycled commodity values declined precipitously, dragging internal growth; recycling revenue fell from $28.6M to $21.9M YoY in Q4, reducing mix from 2.4% to 1.7% .
FX pressure in Canada: internal growth table shows FX headwind of -3.9% in Canada in Q4, muting total solid waste internal growth to 3.5% despite strong U.S. price .
GAAP EPS distorted YoY by prior-year tax effects: Q4 GAAP EPS declined to $0.50 from $1.19 due to a $209.4M tax benefit in Q4 2017 tied to U.S. Tax Act; adjusted EPS rose to $0.63, but reported comparisons may appear weak absent normalization .

Financial Results

Quarterly Financials vs Prior Periods

Metric	Q2 2018	Q3 2018	Q4 2018
Revenue ($USD Billions)	$1.240	$1.281	$1.262
GAAP Diluted EPS ($)	$0.52	$0.57	$0.50
Adjusted EPS ($)	$0.65	$0.69	$0.63
Adjusted EBITDA ($USD Millions)	$395.5	$416.8	$397.2
Adjusted EBITDA Margin (%)	31.9%	32.5%	31.5%

Q4 Year-over-Year Comparison

Metric	Q4 2017	Q4 2018
Revenue ($USD Billions)	$1.157	$1.262
GAAP Diluted EPS ($)	$1.19 (includes $209.4M tax benefit)	$0.50
Adjusted EPS ($)	$0.52	$0.63
Adjusted EBITDA ($USD Millions)	$360.7	$397.2
Adjusted EBITDA Margin (%)	31.2%	31.5%

Segment Revenue Breakdown (Q4)

Segment	Q4 2017 ($MM)	Mix	Q4 2018 ($MM)	Mix
Solid Waste Collection	$798.2	69.0%	$872.3	69.1%
Solid Waste Disposal & Transfer	$238.1	20.6%	$270.1	21.4%
Solid Waste Recycling	$28.6	2.4%	$21.9	1.7%
E&P Waste Treatment, Recovery & Disposal	$53.3	4.6%	$64.0	5.1%
Intermodal & Other	$39.0	3.4%	$33.6	2.7%
Total Reported Revenue	$1,157.2	100.0%	$1,261.7	100.0%

KPIs and Additional Statistics (Q4 2018)

KPI	Value
Solid waste price + volume growth	4.9% (exceeding outlook)
Solid Waste Internal Growth (Total)	3.5% (Core Price 4.4%; Surcharges 0.4%; Volume 0.1%; Recycling -0.8%; FX -0.6%)
Acquisition contribution (Q4)	$61.4M revenue
Internalization	56%
Days Sales Outstanding	44 (31 net of deferred revenue)
Debt to Book Capitalization	39%
Cash Interest Paid (Q4)	$39.3M
Cash Taxes Paid (Q4)	$19.1M
Diluted Shares Outstanding (Q4)	264.45M
Cash Dividend per Share (Q4)	$0.16

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Revenue	FY 2019	Not previously provided in 8-Ks	~$5.310B	Initial
Net Income (GAAP)	FY 2019	Not previously provided	~$636.0M	Initial
Adjusted EBITDA	FY 2019	Not previously provided	~$1.705B (~32.1% margin)	Initial; implies +30 bps YoY
Net Cash from Operating Activities	FY 2019	Not previously provided	~$1.525B	Initial
Adjusted Free Cash Flow	FY 2019	Not previously provided	~$950.0M	Initial
Effective Tax Rate (assumption)	FY 2019	~21.5% mid-point	21.5%–26.5% potential range due to proposed IRS regs; modeled at ~24%	Raised assumption range
Dividend	Quarterly	Increased 14.3% in Q3 2018	$0.16 paid in Q4 2018	Maintained post-increase

Earnings Call Themes & Trends

Topic	Q2 2018 (Previous Mentions)	Q3 2018 (Previous Mentions)	Q4 2018 (Current Period)	Trend
Recycling commodity prices	Headwinds intensified; margin resilience despite recycling pressure	“Toughest quarterly comparison” for recycled commodities; overcame with pricing and E&P strength	Continued “precipitous decline” referenced; offset by pricing and E&P	Ongoing headwind; managed via pricing discipline
Solid waste pricing	Strong core price growth (3.8–4.4% in Q2)	Price up 120 bps YoY; organic growth exceeded outlook	Pricing up 130 bps YoY to 4.5% for full-year; 4.9% price+volume in Q4	Sustained acceleration
E&P waste activity	Strong; supported above-outlook results	Continued strength	Strong activity contributed to beat	Stable-to-positive
Acquisition pipeline	~175M annualized acquired YTD by Q2	Signed ~$175M deal; 2018 total acquired ~$360M	American Disposal closed; total acquired >$360M; ~$200M rollover for 2019	Elevated, supporting 2019 growth
FX/Canada exposure	FX tailwinds in Q2 (Canada +4% FX)	FX headwind in Canada (-4.3%)	FX headwind continued in Canada (-3.9%)	Volatile; headwind in H2
Tax rate	N/A	N/A	2019 effective tax modeled at ~24% amid IRS proposed regs (range 21.5–26.5%)	Potential upward pressure

Note: Q4 2018 earnings call transcript is available via company investor site; scheduling and replay details provided in the press release . Full transcript reference: .

Management Commentary

“Increases in both solid waste pricing growth, which was up 130 basis points year-over-year to 4.5%, and E&P waste activity enabled us to overcome the precipitous decline in recycled commodity values and certain cost pressures...” — Ronald J. Mittelstaedt, Chairman & CEO .
“Our acquisition of American Disposal in the fourth quarter brought total annualized acquired revenue to more than $360 million for the year, with rollover revenue contribution of approximately $200 million in 2019 ... we expect continuing double-digit adjusted free cash flow* per share growth...” — Ronald J. Mittelstaedt .

Q&A Highlights

Management hosted the Q4 2018 earnings call on Feb 14, 2019, with replay and webcast available; investors were guided to expect a separate 8-K providing Q1 2019 outlook (revenue, price+volume growth, adjusted EBITDA) the following day .
Effective tax rate context: 2019 guidance modeled at ~24% due to IRS proposed regs potentially raising the effective rate into a 21.5–26.5% range; this was explicitly discussed in the outlook tables .
For detailed Q&A exchanges (topics such as pricing cadence, E&P activity mix, acquisition contribution), see the full transcript: and alternative sources .

Estimates Context

S&P Global consensus for Q4 2018 (EPS and Revenue) could not be retrieved at time of execution due to request limit constraints; as a result, direct comparisons to consensus are unavailable. Values retrieved from S&P Global.*
Given historical beats on revenue in Q2–Q4 and price-led growth, estimate revisions for 2019 may skew upward on margin expectations and acquisition contribution, but investors should reassess tax rate assumptions per 2019 outlook .

Key Takeaways for Investors

Quality beat: Above-outlook Q4 revenue and strong adjusted EPS/margin despite recycling and FX headwinds signal robust price discipline and operating leverage .
2019 setup: Initial guidance implies high single-digit revenue growth and ~30 bps margin expansion, underpinned by ~$200M rollover from acquisitions and continued pricing momentum .
Mix shift resilience: E&P waste strength and landfill volumes cushioned commodity and FX pressures, highlighting diversified revenue streams .
Cash generation: Net CFO guided to ~$1.525B and adjusted FCF ~$950M support continued returns and M&A capacity, with a growing dividend and opportunistic buybacks .
Watch tax dynamics: IRS proposed regulations may lift the effective tax rate; monitor for impacts on 2019 EPS conversion and cash taxes .
Monitor leadership updates: Post-Q4, CEO temporary leave was announced; track governance and operational continuity disclosures .
Tactical positioning: Given recurring commodity headwinds, focus on price cadence, landfill special waste backlog, and acquisition integration metrics to gauge margin trajectory .

Additional relevant press releases around Q4 2018:

Earnings release scheduling notice (Jan 3, 2019) .
CEO temporary leave of absence (Feb 19, 2019) .