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Republic trash Services

Trash Service / December 24, 2017

Wire trash can spilling money.

What the analysts expect

Ultimately, what the analysts predict will happen is far less important than what the company actually delivers. Not only that, but over the last year, the analysts covering these companies have generally lowballed their earnings estimates, so take their predictions with an extra grain of salt.

Waste Management has bested expectations for the last four consecutive quarters, beating not just the analysts' consensus estimate, but in many cases even the most optimistic of the analysts' forecasts. So, it should come as no surprise that the analysts have high expectations of $0.77 in earnings per share (EPS) for the quarter, a full 8.5% higher than the company's EPS from the year-ago quarter.

Republic Services' earnings, on the other hand, have historically been much more in line with analysts' expectations. Still, the analysts are expecting a modest $0.05 per-share increase in earnings over the year-ago quarter.

Although Waste Connections has a history of outperforming expectations similar to Waste Management's, the analysts seem cooler about this company's prospects. After three quarters of meeting or beating the most optimistic analysts' forecasts, in Q3, Waste Connections - while still beating the consensus estimate by $0.04 - was well within the forecast range. Maybe that's why analysts are predicting just $0.87 in EPS for Q4, well below the $1.04 from the year-ago quarter.

Let's look at how these expectations compare with the guidance the companies themselves have given.

A time of flux

Waste Connections is still in the process of digesting its large acquisition of rival Progressive Waste, which is less than a year old. In fact, if you look at the company's 2016 stock performance, you'll see that shares appear to have fallen off the proverbial cliff midyear. Not to worry, though - that was just the point at which the two companies' stocks were merged into a new ticker and relisted at a new price. Still, as the company noted in its Q3 earnings call, until the acquisition hits the one-year mark, it will be tricky to compare apples to apples.

The company didn't provide specific EPS guidance for Q4, but its overall projections haven't changed since it reported Q2 earnings back in August. Management anticipates $1.02 billion in revenue for the quarter, along with projected operating income of 16.5% of revenue, or an estimated $168.3 million.

Waste Connections CEO Ron Mittelstaedt admitted on the previous earnings call that the company's guidance - at least as far as volume growth - is conservative:

[W]e tried to be conservative in guiding volume growth particularly given that 2016 is the fourth year of strong MSW [municipal solid waste] volumes. The deeper we get into this recovery, the tougher we expect the comparisons to be, unless the economy shifts into higher gear, which, with housing starts still running around 1 million units, we're not yet seeing or expecting.

Besides looking to see whether the company met its guidance, when Waste Connections reports earnings, I'll be paying close attention to how management talks about the Progressive Waste integration. I'll also be interested to see whether Mittelstaedt seems to be changing his tune about volume growth and the prospect of an impending economic recovery.

Keep on trucking

By contrast, both Waste Management and Republic Services have provided specific fourth-quarter EPS guidance and are optimistic about their companies' prospects. Both had stellar third quarters and raised estimates accordingly.

Waste Management expects at least $2.91 in adjusted EPS for the year, an increase from its prior prediction of between $2.83 and $2.86. It also expects its 2016 free cash flow to be between $1.6 billion and $1.7 billion. Outgoing CEO David Steiner cited "three consecutive quarters of strong price, positive volume, and better than expected earnings performance" as reasons behind the improved predictions. He also expressed confidence the company would "meet or exceed the current Wall Street consensus" for the fourth quarter, so we'll soon find out if he was right.

Source: www.fool.com