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Covanta releases fourth quarter results

Covanta Holding Corporation, a leading global owner and operator of Energy-from-Waste projects, reported financial results on February 6, 2013 for the three and 12 months ended December 31, 2012.


Covanta Holding Corporation, a leading global owner and operator of Energy-from-Waste projects, reported financial results on February 6, 2013 for the three and 12 months ended December 31, 2012.

     
    Full Year
Continuing Operations   2011   2012   2012 Guidance1
             
    (Unaudited, $ in millions, except per share amounts)
Revenue   $ 1,650   $ 1,644     N/A
Income from Continuing Operations   $ 84   $ 118     N/A
Adjusted EBITDA   $ 494   $ 492   $ 490 – $ 500
Free Cash Flow   $ 282   $ 262   $ 250 – $ 265
Adjusted EPS   $ 0.54   $ 0.52   $ 0.50 – $ 0.55
                   
                   

1 As of November 7, 2012.

Key Full Year 2012 Highlights:

  • Record year in terms of EfW Boiler availability;
  • Signed $2.5 billion of waste and energy contracts with average term of 12 years — secured two million tons of waste and 750,000 MWh of generation per year;
  • Acquired ~2,700 tonne per day Delaware Valley EfW facility; immediately accretive to key metrics;
  • Successfully refinanced $1.9 billion in debt, creating substantial financial flexibility;
  • Honolulu EfW project expansion successfully commenced commercial operation; and
  • Doubled dividend to $0.60/share annually; shareholder returns totaled $169 million.

Commenting on Covanta’s 2012 results, Anthony Orlando, Covanta’s President and CEO stated, “I’m pleased with both our 2012 operating performance and the execution of organic growth initiatives. This good work enabled us to offset the drop in energy and metals markets, as well as the impact of Hurricane Sandy. We also had a great year extending long-term waste and energy contracts. Our contracted revenue base, combined with our continued investment in organic growth initiatives, positions us to grow in the coming year. Our guidance calls for 5% Adjusted EBITDA growth in 2013, and maintaining our strong Free Cash Flow. Our focus is on investing in the business for the long-term, and we see a number of exciting opportunities that will allow us to grow this year and beyond.”

Full Year 2012 Results
For the twelve months ended December 31, 2012, total operating revenues declined slightly to $1,644 million from $1,650 million in 2011. This was primarily due to the negative impacts of:

  • Lower revenues earned explicitly to service project debt;
  • Lower pricing for energy at EfW facilities and recycled metals; and
  • Hurricane Sandy impact, as certain facilities were briefly forced off-line.

These impacts were substantially offset by:

  • Organic growth initiatives in special waste, recycled metals and other;
  • Escalations in service fee contracts; and
  • New units coming online.

Excluding certain items2, operating expenses were $1,420 million for 2012 compared to $1,427 million for 2011. The $7 million decrease was primarily due to:

  • The benefits from various operational improvements.

Offset by:

  • Expenses related to Hurricane Sandy for repairs at facilities; and
  • Lower alternative fuel tax credits.

Excluding the items noted above, and the net operating income negative effect of Hurricane Sandy of $9 million in 2012, operating income was $233 million for the year ended December 31, 2012, or an increase of $10 million compared to the prior year period. Operating income improved due to:

  • Organic growth initiatives; and
  • New units coming online.

Partially offset by:

  • Lower debt service pass through revenue;
  • Lower pricing for EfW energy and recycled metal; and
  • Lower alternative fuel tax credits.

Adjusted EBITDA declined $2 million to $492 million primarily due to lower debt service pass through revenue, lower EfW energy and lower recycled metal pricing, lower alternative fuel tax credits, and the impact of Hurricane Sandy, mostly offset by organic growth initiatives, and new units coming online.

Free Cash Flow was $262 million, down $20 million versus 2011. The decline was primarily due to net effect of Hurricane Sandy, increased maintenance capital expenditures and higher interest expense.

Adjusted EPS of $0.52 declined by $0.02 compared to $0.54 in 2011, due to a higher effective tax rate, increased interest expense and the negative impact of Hurricane Sandy. These factors were partially offset by higher pre-tax income, increased equity income, and a lower number of shares outstanding due to the Company’s stock buyback program.

2 Includes pension plan settlement expense, net (gains) write-offs and impact of adverse loss development and transition to run-off of our insurance business. For additional information, see Exhibit 4A – Note (a) – (f)  of this press release. 

Shareholder Returns and Liquidity
In 2012, the Company doubled its annual cash dividend to $0.60 per share and returned $169 million to shareholders, consisting of $81 million in cash dividends and $88 million in share repurchases (3.9% of common stock outstanding). Since the inception of its buyback program the Company has repurchased 25.8 million shares, or 16.7% of shares outstanding, at a weighted average cost of $16.00. As of December 31, 2012, Covanta had $87 million of share repurchase authorization remaining.

Sanjiv Khattri, Covanta’s Chief Financial Officer, commented, “2012 was a solid year for us. We were very active in returning capital to shareholders through our dividend and stock repurchase program. We also took advantage of strong debt markets, financing over $1.9 billion of capital. We have a strong balance sheet with flexibility and ample liquidity. As a result of the financing, as well as increased depreciation associated with our Delaware Valley facility acquisition, our 2013 net income and EPS will be negatively impacted by higher interest expense and depreciation. Our other key financial metrics, Adjusted EBITDA and Free Cash Flow, remain strong and we have some nice growth prospects for 2013 and beyond.”

Fourth Quarter Results
Operating revenues of $430 million were flat with the prior year period. Significant factors included the positive impacts of:

  • Organic growth initiatives in special waste, recycled metals and other; and
  • Escalations in service fee contracts.

Negative impacts were:

  • Hurricane Sandy as certain facilities were briefly forced off-line;
  • Lower revenues earned explicitly to service project debt;
  • Lower recycled metals pricing; and
  • Lower revenues from our insurance business.

Excluding the items noted above, operating expenses were $351 million in 2012 compared to $345 million for 2011, an increase of $6 million. Benefits from various operational improvements were more than offset by the negative impact of Hurricane Sandy and normal cost escalations.

Excluding the items noted above and the net operating income effects of Hurricane Sandy, operating income was $88 million for the year ended December 31, 2012, or an increase of $3 million compared to the prior year period.

Adjusted EBITDA declined $4 million to $143 million in 2012, primarily due to the negative impact of Hurricane Sandy, lower recycled metals pricing, lower alternative fuel tax credits, partially offset by the benefits of organic growth initiatives.

Free Cash Flow of $57 million in 2012 declined $6 million versus 2011 primarily due to higher interest expense, which was partially offset by the timing of other working capital.

Adjusted EPS of $0.20 declined by $0.07 from the prior year period due to a higher effective tax rate, increased interest expense and the negative impact of Hurricane Sandy. These declines were partially offset by a lower number of shares outstanding due to the Company’s common stock buyback program.

2013 Guidance 
The Company is establishing guidance for 2013 for the following key metrics:

(In millions, except per share amounts)

 
Metric   2012 
Actual
  2013
Guidance Range
  % Change At Midpoint
Adjusted EBITDA   $ 492   $ 500 – $ 530   +5%
Free Cash Flow   $ 262   $ 250 – $ 280   +1%
Adjusted EPS   $ 0.52   $ 0.40 – $ 0.50   -13%
         

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