After first-quarter gloom, haulers see bale prices rising

Jared Paben

12 months ago

The five largest haulers in North America reported first-quarter 2023 financials, with some seeing prices recover from a slump. | L.O.N DSLR Camera/Shutterstock

Depressed commodity prices continued to batter the bottom lines of large publicly traded curbside recycling businesses during the first quarter, although some MRF operators are now seeing steadily increasing values.

North America’s five largest publicly traded garbage and recycling companies, Waste Management (WM), Republic Services, Casella Waste Systems, GFL Environmental and Waste Connections, all recently disclosed their first-quarter 2023 financial results.

By and large, their recycling businesses saw revenues fall from the prior-year period, when recovered fiber prices were extremely high. But some, including WM, are now seeing prices start to rebound.

WM CEO Jim Fish said the average commodity price in the first quarter was $54 per ton, but that increased throughout the quarter, reaching $57 in March.

“And then as we’re getting into April, we’re seeing that continue to improve,” Fish said during an April 27 conference call with investors. “[A] couple of things are helping us. The mill capacity that’s coming on-line is helping with demand on the back end. We’re also seeing a pretty significant uptick in pricing for plastics, for aluminums and a little bit for OCC.”

The following are more details on recycling-related financial results for the top five publicly traded garbage and recycling companies in the first quarter of 2023:

Waste Management

WM’s recycling business brought in $358 million in revenue during the first quarter, down 21% year over year.

According to the company’s quarterly report, the downturn in commodity prices that started in the second half of 2022 has continued into early 2023. During the first quarter, average market prices for WM commodities were down 60% from the prior-year period.

The quarterly report pointed to “the slowdown in the global economy which reduced retail demand and the corresponding need for cardboard packaging to ship retail goods.”

In the April 27 conference call, Fish noted recovered commodity prices averaged $47 at the end of the fourth quarter, and they increased to an average of $54 in the first quarter of this year. But they continue to increase. As a result, WM executives are sticking to their earlier prediction of an average of $70 for the full year 2023, he said.

According to a press release, first-quarter operating earnings before interest, taxes, depreciation and amortization (EBITDA) in the recycling business decreased by $42 million compared with the first quarter of 2022, mainly because of lower commodity prices.

The report also noted that WM spent $660 million on capital projects during the first quarter, up about 58% year over year, as part of a massive expansion of its recycling and landfill gas projects.

WM remains on track to bring on-line seven newly automated MRFs by the end of this year, Fish said during the call.

“We’re also opening one new MRF in 2023 in the Greater Toronto area, which positions us strongly in the largest growth market in Canada,” he said.

Recycling now accounts for 7% of WM’s total operating revenue. Overall, the company pulled in $4.89 billion in revenue during the first quarter, up 5% year over year.

By the numbers

The following is a look at key first-quarter 2023 recycling numbers from the five largest publicly traded haulers in North America:

Waste Management

Q1 recycling revenue: $358 million
Q1 revenue change YoY: Down 21%
Average Q1 commodity price: $54 per ton
Commodity price change Yoy: Down 60%
Q1 recycling EBITDA YoY: Down by $42 million

Republic Services

Q1 recycling revenue: $71 million
Q1 revenue change YoY: Down 29%
Average Q1 commodity price (excluding glass and organics): $105 per ton
Commodity price YoY: Down 48%

Casella Waste Systems

Q1 Resource Solutions (which includes recycling) revenue: $68 million
Q1 revenue change YoY: Up 1%
Q1 operating income: Loss of $2 million
Operating income YoY: Down by $5.7 million (prior year was positive $3.7 million)

GFL Environmental (converted to U.S. from Canadian dollars on May 1, 2023)

Q1 recycling revenue: $62 million
Q1 revenue change YoY: Down 6%

Waste Connections

Q1 recycling revenue: $31 million
Q1 revenue change YoY: Down 50%
Average Q1 OCC price: $60 per ton
OCC price YoY: Down 63%

Republic Services

The recycling business brought in $71 million in revenue for Republic Services during the first quarter, down 29% year over year.

During the first quarter, the average price for recyclables (excluding glass and organics) was $105 per ton, down from $201 a year earlier, according to the company’s quarterly report. According to a press release, the first-quarter number was up from $88 per ton in the fourth quarter of 2022, however.

During an April 27 conference call with investors, Brian DelGhiaccio, chief financial officer for Republic Services, said current commodity prices are about $115 per ton.

“We believe that commodity prices will continue to recover in the second half of the year as the global supply/demand imbalance continues to correct,” he said. Recycling makes up 2% of Republic’s operation revenue. Overall, the company tallied $3.58 billion in revenue during the first quarter, up 21% year over year – acquisitions factored heavily into the dramatic increase, however.

Casella Waste Systems

Casella’s Resource Solutions segment, which includes recycling and other businesses, reported $68 million in revenue during the first quarter, up 1% from the year before.

The Resource Solutions segment includes the company’s recycling business, its organics processing and disposal business, and services for large industrial, institutional or multi-site retail customers.

The Resource Solutions overall year-over-year increase in revenue was about $900,000. That figure is the result of a number of factors, the company’s quarterly report shows. Revenue increases came from higher processing volumes, mostly for recyclables (a year-over-year increase of $4.8 million), acquisitions (increase of $2.7 million) and better results in the National Accounts business ($4.5 million increase). Those factors total $12 million.

But nearly completely erasing those positive numbers was the pain caused by lower commodity prices, which were only partially offset by the recycling fees Casella charges. Recycling markets reduced year-over-year revenues by $11.1 million.

The company also discloses operating income in the Resource Solutions business. For the first quarter, the Resource Solutions segment’s operating income was actually a loss of $2 million. During the first quarter of 2022, the operating income in that segment was a positive number, $3.7 million.

In a press release, John W. Casella, the company’s chairman and CEO, noted that the company’s Sustainability Recycling Adjustment (SRA) fees partly insulate it from the impact of dropping commodity prices, but Casella has acquired other companies recently that had contracts that didn’t mitigate the risk the same way.

“While recycling commodity prices have improved sequentially from late 2022 through the first quarter, prices were still down significantly year-over-year in the first quarter and presented an expected headwind to our consolidated performance,” he stated. “Despite this year-over-year decline in commodity prices, our risk mitigation strategies, such as our floating [SRA] fee, have helped to limit the negative financial impact.”

“However,” he continued, “we are experiencing recycling commodity price headwinds related to several existing contracts from recent acquisitions that will reset over the next few years.”

Ned Coletta, the company’s chief financial officer, said during an April 28 conference call that the newly acquired operations had “legacy contracts that do not allow us to pass the recycle risk back to customers. These markets accounted for 80% of the year-over-year adjusted EBITDA decline from commodities.”

More recently, on April 24, Casella announced the acquisition of garbage and recycling operations in Pennsylvania, Delaware and Maryland from GFL Environmental. The $525 million acquisition, which is expected to close by the third quarter, includes nine hauler operations, one transfer station and one MRF, all of which generate annual revenue of roughly $185 million.

In the press release, John Casella also noted that the company is continuing to invest in its own recycling infrastructure, with its Boston MRF retrofit project expected to be complete by mid-2023. In the call, Coletta noted that the Boston MRFs adjusted EBITDA was down by $2.5 million during the quarter because of the planned shutdown during the technology upgrade project. “Revenues were lower as we displaced volumes and costs were high as we had to transload volumes to other facilities,” he said.

Overall, the company reported first-quarter revenue of $263 million, up 12% year over year,

GFL Environmental

The Canada-based company’s recycling business brought in 83.8 million Canadian dollars (nearly $62 million; all values below in USD) in revenue during the first quarter. That was down 6% year over year, according to a quarterly report.

During an April 28 conference call with investors, Patrick Dovigi, the company’s founder and CEO, said the company expected pretty soft commodities pricing in the first and second quarters of this year, “but we are seeing increased demand for the recycled products.”

The company’s recycling professionals expect that late in the second quarter and into the third quarter – particularly the latter half of the third quarter – “we’ll start seeing some movements up in the right direction,” he said.

Materials recovery accounts for about 5% of GFL’s overall operating revenue. During the first quarter, the company brought in about $1.33 billion in revenue, up 28% year over year.

Waste Connections

Waste Connections’ recycling business tallied $31 million in revenue during the first quarter, down 50% year over year.

The decrease was primarily due to “lower commodity pricing for old corrugated cardboard, aluminum, plastics and other paper products as compared to the prior period,” according to the company’s quarterly report.

During an April 27 conference call, Mary Anne Whitney, the company’s chief financial officer, said OCC prices averaged $60 during the first quarter, as expected.

A year earlier, the OCC price averaged $163 per ton.

Recycling now makes up about 2% of the company’s operating revenue. Overall, Waste Connections reported revenue of $1.9 billion during the first quarter, up 15% year over year.