Covanta Holding Corporation (CVA) reported adjusted earnings per share of 18 cents in the fourth quarter of 2013, missing the Zacks Consensus Estimate of 21 cents by 14.3%. The quarterly profit also fell short of the year-ago number of 22 cents by 18.2%.
2013 earnings came in at 38 cents a share, in line with the Zacks Consensus Estimate but down by 20 cents from the 2012 level. The lackluster performance was mainly due to lower operating income, a higher effective tax rate, higher interest expense and lower equity income.
Total revenue was $422.0 million in the quarter, almost in line with the Zacks Consensus Estimate of $423.0 million. The fourth quarter top line declined 1.6% from the year-ago figure of $429.0 million.
2013 revenue stood at $1,630.0 million, beating our projection by $7.0 million. Yet, the figure dropped 0.8% from the 2012 level. The year-over-year decline was due to lower construction revenue. This was partly offset by an increase in same store North America EfW revenue and higher revenue from service fee contract transitions.
Operating expenses in the fourth quarter were $335.0 million, up 6.7% from the year-ago quarter owing to higher plant maintenance costs and depreciation as well as amortization expenses.
Operating income in the quarter at $87.0 million declined from the year-earlier figure of $115.0 million.
Cash and cash equivalents as of Dec 31, 2013, were $198.0 million, down from $243.0 million as of Dec 31, 2012.
Long-term debts as of Dec 31, 2013, were $1,557.0 million versus $2,012.0 million as of Dec 31, 2012.
Cash flow from operating activities in 2013 was $324.0 million compared with $357.0 million in 2012.
Shareholder Returns and Liquidity
Covanta Holding continues to enhance shareholder wealth through share buyback and dividend payments. In 2013, Covanta Holding returned $121.0 million of capital via dividend and share buyback. The company invested more than $80 million in organic growth projects during 2013.
Covanta Holding and New York City Department of Sanitation entered into a new agreement to transport and dispose municipal solid waste (:MSW) for an expected $2.8 billion in revenue. This 20-year agreement also has two five-year options. Per the agreement, Covanta aims to dispose of 800,000 tons of MSW per year using a multi-modal approach of barges and rail cars, thus eliminating the need of long-haul trucks.
The company acquired Camden Resource Recovery Facility from an affiliate of Foster Wheeler AG (FWLT) for $48.6 million. Covanta has 45 EfW facilities and this acquisition will expand its presence beyond the Northeast and Mid-Atlantic.
Covanta Holding provided its outlook for 2014. It expects adjusted Earnings before Interest, Tax, Depreciation and Amortization (:EBITDA) in the $470.0–$500.0 million range and free cash flow within $170.0–$210.0 million. The company expects earnings per share to come in between 35 cents to 50 cents for the year.
Other Upcoming Releases
Waste Management, Inc. (WM) is scheduled to release its fourth quarter earnings on Feb 18. The Zacks Consensus Estimate is currently at 60 cents.
Ormat Technologies, Inc. (ORA) is scheduled to release its fourth quarter earnings on Feb 25. The Zacks Consensus Estimate is currently at 15 cents.
Though Covanta Holding fell short of our expectation, the signing of a 20-year waste transport and disposal agreement with the New York City Department of Sanitation last year will ensure a steady revenue stream.
Despite investing regularly in the maintenance of its facilities, unscheduled outages will definitely raise doubts about the quality of the maintenance work done at its facilities.
Covanta is one of the world’s largest owners and operators of infrastructure for the conversion of WTE, as well as other waste disposal and renewable energy production businesses. The company conducts all of its operations through subsidiaries which are engaged predominantly in the businesses of waste and energy services.
Covanta Holding currently carries a Zacks Rank #3 (Hold).
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