Covanta Holding Corporation Earnings Call Nuggets: Europe Development Projects, Metals Upsides
On Thursday, Covanta Holding Corporation (NYSE:CVA) reported its first quarter earnings and discussed the following topics in its earnings conference call. Here’s what executives shared.
Europe Development Projects
Carter Shoop – KeyBanc: First question is can you provide us an update on your development projects in Europe? I’d be curious to hear how confident you are about getting financing lined up for Dublin. Should investors be thinking about this as more of a long shot opportunity or more a 50-50? Then also are you still feeling pretty – feeling like that projects have 50-50 chance and then lastly any update with Midpoint, Green Hills, Rookery South?
Anthony J. Orlando – President and CEO: Well, let me take Dublin first. This is Tony. I think we’ve said a couple of times in the past that we are working closely with our clients at Dublin City Council. We both believe the project makes sense and supports the Irish policy initiatives to reduce dependence on land filling. We both like to restart construction, and as we said before, we view it as a very attractive project, but we don’t want to move forward absent some third-party financing. We have initiated a process, and we plan to be in a position late this summer to make a decision based on the outcome of that process with respect to the financing and the decision to move forward. So, I think we’ll get some clarity on that by the end of this summer on Dublin. I think we’re also going to get clarity on our in spot project this summer as well. We are – one of two bidders remaining, we’re you know obviously putting our best foot forward and believe we’re putting forth a very attractive bid for the Merseyside clients. It’s a competitive process and they will be selecting the preferred bidder this summer. So we remain optimistic on that process as well. There’s number of other projects that are in the pipeline but really the focus, those are the two near-term opportunities in Europe.
Sanjiv Khattri – EVP and CFO: Carter, I just first of all want to welcome you to the Covanta team. We feel that you are now covering us and I don’t have much to add, I mean the financing markets are difficult, I think it would be premature to handicap anything. We’re going to give it a good shot and see how it works. I think the discipline is there though. Dublin is an exciting project, but we will not move forward absent financing. That’s clear, and obviously the situation in U.K. is a lot more constructive.
Carter Shoop – KeyBanc: And the follow-up question, can you quantify the impact of some of your recent organic growth initiatives. Metals, how should we think about the impact from the 10 new projects in 2013 and also in special ways, it sounds like you are investing in that now. How should we think about the impact in ‘13?
Anthony J. Orlando – President and CEO: Obviously, we did lay out at the beginning of the year, what we expect from all the organic growth initiatives in terms of the EBITDA impact for 2012. We haven’t yet laid out what our expectations are for 2013, and it would be premature to do at this point. What we said is that it’s our objective and focus to continue growing the business. We do have obviously some headwinds right now with energy and some other headwinds, but that’s our goal to – and we’re really excited about the things that we got going on in the organic growth side. Metals has kind of come out of the box real strong. We have got some great process improvements going on to drive down our costs and we feel good that we are going to a gain a lot of traction. We’ve got I think a terrific asset base. It’s really unique in the business with the ability to offer the zero landfill disposable option with a large network. And we are excited about where that’s going to take us but it’s still early in the process.
Sanjiv Khattri – EVP and CFO: Carter you were not on CVA then we gave guidance that organic growth was could be as much as $30 million year-over-year to our EBITDA and I think the early signs are good, very good.
Carter Shoop – KeyBanc: And just to clarify that’s for 2012.
Sanjiv Khattri – EVP and CFO: Yes. This is full year versus 2011.
Gregg Orill – Barclays Capital: I was wondering maybe I can take another shot at the metals upsides through the organic growth initiatives. Maybe in terms of how much of the waste steam, are you recovering now in terms of metals on a percentage basis? And then what’s a reasonable level that you think you can get to? I see on a trailing 12 basis recycled gross tons recovered is about 439,000 tons. Do you have a sense for maybe what the goal could be?
Anthony J. Orlando – President and CEO: We haven’t set out specific goals. So let me give you maybe some color around this and we did increase just this quarter about 15% on the non-ferrous and I think it was 89% on the ferrous recovery. We are now providing a split between the ferrous and non-ferrous in the historical numbers. So that you can really better appreciate because there is a very big difference in price between ferrous and non-ferrous. We’ve also kind of started to layout for you the key market metrics for both the ferrous and non-ferrous pricing to give you a sense of that. So then the question, the market you everybody can kind of put their own take on where the market’s going, and the key question you have asked, kind of what volumes do you expect. I’ll tell you that the big increase that we are focused on is non-ferrous recovery with the agreement that we signed with Steinert we really think there is an opportunity there. Very low, when you look at the total number of tons that we recovered, it’s a very small number of tons. So in terms of percentage of waste stream or what not it’s a small number. But it can be very impactful because of the price for the non-ferrous. 15% increase this quarter really we’re tightening up systems much of the capital that we’re investing now over the course of the rest of this year is going to be targeted at recovering more non-ferrous recovery. Most of those projects don’t come online until late this year we do have one project that’s going to come online in the second quarter. We’ll see where it’s going but I think that’s going to be the key driver as increased non-ferrous recovery.
Gregg Orill – Barclays Capital: Okay and then back on Slide 12 the organic growth initiative was $7 million and year-over-year EBITDA, how much of that was from the new units coming online.
Sanjiv Khattri – EVP and CFO: We don’t like to break that up Greg, but the new units was quite modest for the first quarter but over the year it should become a meaningful number. It was a very small part of the number.