Markedly higher commodity prices continue to provide big year-over-year boosts in revenue for the largest publicly traded haulers in North America.
Waste Management, Republic Services, GFL Environmental and Casella Waste Systems all reported double-digit increases in their recycling revenues during the second quarter of 2021. Waste Management’s was up by 44%, Republic’s by 40%, GFL’s by 29% and Casella’s by 16%.
The increases came largely as a result of average recyclables prices being so much higher during the April-June 2021 timeframe, compared with a year earlier, when a worsening COVID-19 pandemic was quickly transforming global work and living patterns. For example, Waste Management (WM) reported receiving an average of $100 per ton for recovered commodities during the second quarter, up from $57 a year earlier.
And WM expects the higher prices to continue.
“We currently expect the year-over-year increase to continue for the remainder of 2021 as we see strong demand for recycled materials outpacing supply, driven by the growth in e-commerce, businesses re-opening, and manufacturers committing to use more recycled content in their packaging,” according to WM’s quarterly report.
The following are second-quarter 2021 recycling business results for WM, Republic, GFL and Casella, the first-, second-, fourth- and fifth-largest residential garbage and recycling companies in North America, as measured by total revenues. Financial results for Waste Connections, the third largest, are scheduled to be released on Aug. 4.
The second-quarter numbers were a continuation of the steep year-over-year increases enjoyed during the first quarter of 2021.
Higher commodity prices – as well as a reopening of MRFs that suspended operations earlier in the pandemic – significantly drove WM’s recycling revenues and profits during the second quarter.
WM’s recycling business brought in $397 million in revenue during the second quarter, up 44% year over year. During a July 27 call with investors, Devina Rankin, WM’s chief financial officer, said second quarter commodity prices averaged $100 a ton. That was up by 75% from the second quarter of 2020, when the prices averaged $57 a ton.
WM expects higher commodity prices for the rest of the year. Rankin noted that prices have continued to climb, with July 2021 prices higher than the $114 per ton WM enjoyed in June 2021.
In addition to higher recycling revenues in the second quarter of this year, WM reported significantly higher recycling business profits in the second quarter of this year. A company press release noted recycling operations earnings before interest, taxes, depreciation and amortization (EBITDA) increased by $56 million year over year.
“The improvement was driven by an increase in market prices for recycled commodities, investments the Company is making in improved technology and equipment at its materials recovery facilities that are delivering a lower operating cost model and the re-opening of facilities where operations were temporarily suspended during the pandemic,” the release notes.
During the call with investors, Jim Fish, CEO of WM, said the second-quarter recycling business performance helped lift profits for the whole company. It was WM’s best single quarter ever for its recycling segment. Changes to contracts and investments in MRF technology both contributed to the better recycling financials.
“We have made substantial progress in de-risking our recycling business by shifting to a fee-for-service contract structure, which has lifted the floor for recycled returns and created an economically sustainable business model,” Fish said, according to a transcript provided by Seeking Alpha. “We have also made significant technology investments to improve the cost structure and grow the business.”
WM has been building highly automated MRFs that require less labor than its older single-stream facilities. During the second quarter, staff costs at those “next generation” facilities – which the company currently operates in Chicago and Salt Lake City – were 35% lower than the other single-stream MRFs, Fish said. The new facilities are also able to adjust sorting equipment to produce bales of discrete materials in response to market demand, he noted.
“Overall, our investment in recycling technology – our investments in recycling technology are generating solid returns and we are accelerating our plans to roll out this new operating model across our MRF network,” he said.
On the call, Rankin said WM has invested about $100 million annually in the recycling business over the last few years, but it now plans to boost spending.
By the numbers
The following is a look at key second-quarter 2021 recycling numbers from four of the largest publicly traded haulers in North America (Waste Connections reports its results on Aug. 4):
- Q2 recycling revenue: $397 million
- Revenue change YoY: Up 44%
- Average Q2 commodity price: $100 per ton
- Commodity price change: Up 75%
- Q2 recycling EBITDA change: Up by $56 million
- Q2 recycling revenue: $103 million
- Revenue change YoY: Up 40%
- Average Q2 commodity price (excluding glass and organics): $170 per ton
- Commodity price change: Up 68%
GFL Environmental (converted to U.S. from Canadian dollars on July 30, 2021)
- Q2 recycling revenue: $68.8 million
- Revenue change YoY: Up 29%
Casella Waste Systems
- Q2 Resource Solutions segment revenue: $56 million
- Segment revenue change YoY: Up 16%
- Q2 commodity price change YoY: Up by $62 per ton
- Q2 segment net income: $3.7 million
- Segment net income YoY: Up 103%
Recycling accounts for 9% of WM’s total revenue. Overall, the company’s total revenue in the second quarter was $4.48 billion, up 26% year over year.
Some of the year-over-year revenue increase was because WM finalized its acquisition of Advanced Disposal Services on Oct. 30, 2020, adding 3 million new commercial, industrial and residential customers to WM. WM noted that most of the revenue increase from the acquisition came in the collection and disposal lines of business, not from recycling. Advanced wasn’t nearly as deep into recycling as WM. For example, in 2019, WM’s recycling revenue was over 100 times greater than Advanced Disposal’s.
The company’s recycling business brought in $103 million in revenue during the second quarter, up 40% year over year.
According to the company’s quarterly report, the second-quarter 2021 average commodity price (excluding glass and organics) was $170 per ton, up from $101 during the prior-year’s second quarter, or up 68%. The second-quarter price was also up from $133 per ton during the first quarter of this year, a press release notes.
Like WM, Republic has been working to upgrade its MRFs to reduce labor costs and produce cleaner bales. Republic recently issued its 2020 sustainability report, which noted the company spent $38 million in MRF improvements in 2020. As one example, the company invested $8 million in a renovation of its downtown Minneapolis recycling facility, including installing three optical sorters, the report noted. That project boosted the MRF’s capacity by 35%.
Noting that about 22% of what customers set out for recycling is contamination, Republic said it’s investing in new optical sorters, adding screens that prevent plastic bags from tangling, and replacing OCC sorting equipment to better capture smaller boxes from e-commerce.
During a July 29 earnings call with investors, Brian DelGhiaccio, Republic’s chief financial officer, noted that Republic has historically spent between $30 million and $40 million a year on recycling capital improvements.
Recycling now accounts for nearly 4% of Republic’s total revenue. The company’s total revenue in the second quarter was $2.81 billion, up 15% year over year.
The company’s recycling business brought in 85.7 million Canadian dollars (about $68.8 million U.S.; all dollars below converted from Canadian to U.S. on July 30, 2021). That was up about 29% year over year.
For GFL, “material recovery” is under the company’s solid waste division, which is broken up into U.S. and Canadian segments. In the U.S., GFL’s solid waste division reported an increase of $211.2 million in revenue in the second quarter, compared with the second quarter of 2020. Most of that was because of acquisitions, however, with higher recovered commodity prices contributing only about $1.4 million to the increase.
In Canada, the solid waste segment brought in an additional $34.3 million in revenue during the second quarter; of that, higher commodity prices contributed about $3.8 million, according to GFL’s quarterly financial report.
Also of interest, during a July 29 call with investors, Patrick Dovigi, GFL’s CEO, noted the company now spends about 50 million Canadian dollars (about $40.1 million) a year on capital expenditures related to recycling.
Recycling now makes up less than 7% of GFL’s total revenue. The company’s total revenue in the second quarter was $1.05 billion, up 32% year over year. Much of that increase – or about 29 percentage points – was because of acquisitions completed since July 1, 2020, however.
Casella Waste Systems
The company’s Resource Solutions business segment brought in $56.0 million during the second quarter, up $7.8 million, or 16%, year over year. The “Resource Solutions” segment includes the company’s recycling and commodity brokerage operations, organics services, and large-scale commercial and industrial services.
Of that year-over-year Resource Solutions revenue increase, much of it was because of higher commodity prices. Specifically, higher recyclables prices increased revenue by $3.3 million, according to Casella’s quarterly report. During a July 30 call with investors, Ned Coletta, chief financial officer for Casella, said average commodity prices were up by $62 per ton year over year. That was because of higher OCC, mixed paper, metals and plastics pricing, he said.
Another $3 million of that revenue increase came from a boost in “non-processing revenues,” defined by Casella as recyclables brokerage services, waste and recycling services for large customers, and other services. That was mostly because of a greater volume of recyclables being sold.
Finally, another $1.5 million increase in revenue came from higher “processing volumes,” defined by Casella as receiving, sorting and selling recyclables at company MRFs, as well as charging customers processing fees.
Because of the higher recyclables prices, the company charged its customers less in Sustainability Recycling Adjustment (SRA) fees during the quarter, according to a press release. The boost in revenue from marketing recyclables more than made up for the reduction in fee revenue, however.
Casella and other large haulers have transitioned their recycling contracts in recent years toward funding models that reduce their exposure to commodity markets. In general, those new contracts charge municipal customers fees to sort and sell recyclables, and then the company and municipality share revenue from sales of recyclables. The contract language ensures haulers get some profit during depressed commodity markets, but they may also make less money than they otherwise would during hot markets.
“We built a very fair system to share risk and we maybe don’t have as much of a tailwind right now, but that’s fine with us,” Coletta said during the investors call, according to a transcript from Seeking Alpha. “We’re doing exactly what we set out to achieve and we’re making a nice return in recycling.”
Casella also reports operating income from its different segments on a quarterly basis. The Resource Solutions segment brought in $3.7 million in income during the second quarter, up 103% year over year.
In other Casella news, the company on July 26 acquired Willimantic Waste Paper Co., a residential, commercial and roll-off collection business in Connecticut. Through the deal, Casella acquired one single-stream MRF and other recycling operations.
Resource Solutions now makes up 26% of the company’s total revenue. Overall, Casella brought in $215.9 million, up 14% year over year.
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