Tuesday, July 12, 2016

Waste Handler Ready to Report Financial Results

Casella Waste Systems (CWST:  Nasdaq) is scheduled to report financial results for the June quarter in two weeks.   Casella is worth watching because of its position as a well-established but smaller competitor in the waste collection and handling industry.  The company operates 44 transfer stations and 9 landfills with waste-to-energy installations on a regional basis.  As a public company it is overshadowed by the larger operators such as Waste Management (WM:  NYSE), which operates 297 transfer stations and 249 landfill sites across the continental U.S.   However, within its local markets Casella is able to hold its own.   
The consensus estimate for Casella is a nickel in earnings on $145.4 million in total sales.  Casella finally beat the consensus in the March quarter after two previous stumbles.  Prospects for a beat again this quarter are mixed.  There seems to be quite a divergence in views on earnings in the quarter with estimate contributions from seven analysts ranging from $0.01 to $0.09 per share.  On the other hand the view on sales is in a narrow range from $143.0 million to $146.6 million.  Thus it appears profit margins are in doubt.
Analysts following Casella may just be flummoxed by the March quarter debacle.  A deep loss was widely anticipated on the seasonally weak quarter.  Year-over-year sales growth was 7.6% in the quarter, but the loss was not nearly as much as expected.    Now it appears analysts are having trouble calibrating their earnings models.
Casella has a long history of reported net losses, but cash flow generation projects a different image of the company.  Over the last three years Casella has managed to convert 10.9% of sales to operating cash flow.  However, in the most recently reported twelve months, the conversion ratio increased to 14%.  The improvement came largely on the strategic decision to divest of certain operations in 2015.  The divestiture transactions had weighed on cash flows in the before the closing in May 2015.
In two weeks investors will have a chance to see if Casella’s newly crafted operating structure can continue delivering improved results.

Neither the author of the Small Cap Strategist web log, Crystal Equity Research nor its affiliates have a beneficial interest in the companies mentioned herein.

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