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Waste management company Casella (NASDAQ:CWST) reported Q2 CY2024 results topping analysts' expectations, with revenue up 30.2% year on year to $377.2 million. The company's full-year revenue guidance of $1.54 billion at the midpoint also came in 2.6% above analysts' estimates. It made a non-GAAP profit of $0.22 per share, down from its profit of $0.36 per share in the same quarter last year.
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Casella Waste Systems (CWST) Q2 CY2024 Highlights:
- Revenue: $377.2 million vs analyst estimates of $372.6 million (1.2% beat)
- EPS (non-GAAP): $0.22 vs analyst expectations of $0.28 (21% miss)
- The company lifted its revenue guidance for the full year from $1.50 billion to $1.54 billion at the midpoint, a 2.7% increase
- EBITDA Guidance for the full year is $365 million at the midpoint, above analyst estimates of $356.1 million
- Gross Margin (GAAP): 35.4%, in line with the same quarter last year
- Free Cash Flow of $72.1 million is up from -$2.41 million in the previous quarter
- Market Capitalization: $6.02 billion
Starting with the founder picking up garbage with a pickup truck he purchased using savings from high school, Casella (NASDAQ:CWST) offers waste management services for businesses, residents, and the government.
Waste ManagementWaste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.
Sales GrowthA company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, Casella Waste Systems's sales grew at an incredible 15.4% compounded annual growth rate over the last five years. This shows it expanded quickly, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Casella Waste Systems's annualized revenue growth of 19.5% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, Casella Waste Systems reported wonderful year-on-year revenue growth of 30.2%, and its $377.2 million of revenue exceeded Wall Street's estimates by 1.2%. Looking ahead, Wall Street expects sales to grow 8.3% over the next 12 months, a deceleration from this quarter.
Operating MarginCasella Waste Systems was profitable over the last five years but held back by its large expense base. It demonstrated mediocre profitability for an industrials business, producing an average operating margin of 7.3%. This result is surprising given its high gross margin as a starting point.
Looking at the trend in its profitability, Casella Waste Systems's annual operating margin decreased by 2.1 percentage points over the last five years. The company's performance was poor no matter how you look at it. It shows operating expenses were rising and it couldn't pass those costs onto its customers.
This quarter, Casella Waste Systems generated an operating profit margin of 6.1%, down 1.7 percentage points year on year. Since Casella Waste Systems's operating margin decreased more than its gross margin, we can assume the company was recently less efficient because expenses such as sales, marketing, R&D, and administrative overhead increased.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Casella Waste Systems's EPS grew at a weak 1.2% compounded annual growth rate over the last five years, lower than its 15.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Diving into the nuances of Casella Waste Systems's earnings can give us a better understanding of its performance. As we mentioned earlier, Casella Waste Systems's operating margin declined by 2.1 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Casella Waste Systems, its two-year annual EPS declines of 17.7% show its recent history was to blame for its underperformance over the last five years. These results were bad no matter how you slice the data.
In Q2, Casella Waste Systems reported EPS at $0.22, down from $0.36 in the same quarter last year. This print missed analysts' estimates. Over the next 12 months, Wall Street expects Casella Waste Systems to grow its earnings. Analysts are projecting its EPS of $0.69 in the last year to climb by 41.4% to $0.98.
Key Takeaways from Casella Waste Systems's Q2 ResultsWe were impressed by Casella Waste Systems's optimistic full-year revenue guidance, which blew past analysts' expectations. We were also glad its revenue outperformed Wall Street's estimates. On the other hand, its EPS missed. Overall, this quarter seemed fairly positive and shareholders should feel optimistic. The market was likely expecting more, however, and the stock traded down 3.2% to $99 immediately after reporting.
