Earnings Call: Clean Harbors Reports Mixed Q3 Results, Optimistic for 2025

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Earnings Call: Clean Harbors Reports Mixed Q3 Results, Optimistic for 2025

Clean Harbors, Inc. (NYSE: CLH) reported mixed financial performance for the third quarter of 2024 during its earnings conference call on October 30. While the company witnessed robust growth in its Environmental Services (ES) and Safety-Kleen Sustainability Solutions (SKSS) segments, it fell short of expectations, particularly due to unfavorable pricing conditions in September. Despite these challenges, Clean Harbors remains optimistic about its future and anticipates strong momentum in waste disposal facilities and service offerings by the end of 2024.

Key Highlights:

  • Revenue increased by 12% year-over-year, with adjusted EBITDA rising by approximately $47 million.
  • The ES segment experienced a 13% rise in revenue and a 15% increase in adjusted EBITDA.
  • The SKSS segment reported a 6% increase in revenue but disclosed a $11 million shortfall against expectations.
  • The company finished Q3 with $595 million in cash, planning to undertake acquisitions and stock buybacks.
  • Adjusted EBITDA guidance for 2024 was revised to a midpoint of $1.11 billion.
  • The Kimbell incineration facility in Nebraska is expected to commence operations in November 2024.
  • Management is addressing billing system integration challenges and expects to resolve them by 2025.

Company Outlook:

Clean Harbors forecasts mid-single-digit organic revenue growth and mid-to-high single-digit adjusted EBITDA growth for 2025. The Kimball facility is expected to contribute positively to the company's performance. The company is focused on stabilizing the SKSS segment and anticipates profitable growth as it enters 2025.

Negative Highlights:

  • The company faced a less favorable pricing environment, notably in September 2024.
  • Low demand and pricing challenges late in Q3 created difficulties within the SKSS segment.
  • The Industrial Services sector encountered challenges primarily within the refinery vertical, leading to margin declines.

Positive Highlights:

  • Strong demand for waste disposal and recycling services fueled growth within the ES segment.
  • The company implemented a successful price increase strategy across its waste disposal services.
  • The HEPACO acquisition is progressing ahead of the program to realize synergies.

Shortcomings:

  • The SKSS segment encountered an $11 million shortfall against expectations due to weak demand and pricing.
  • Adjusted free cash flow expectations were lowered to a range of $280 million to $320 million due to higher inventories and delayed cash generation.

Q&A Highlights:

Mike Battles discussed industry challenges and the deferral of the California re-refinery facility. Eric Gerstenberg provided insights on new capacities and customer retention, emphasizing low loss rates and strong demand. Upcoming investor events include those organized by Stifel and Baird.

Despite the disruptions in the third quarter, Clean Harbors continues to adhere to its growth strategy. With the upcoming launch of the Kimbell incineration facility and a focus on stabilizing the SKSS segment, the company positions itself for profitable growth and enhanced financial performance in the coming year.

InvestingPro Insights:

Clean Harbors' mixed Q3 performance for 2024 is reflected in the latest InvestingPro data and insights. Despite the company’s optimistic outlook, its stock took a significant hit over the past week, experiencing a 7.96% decline in total return. This short-term drop sharply contrasts with the company’s strong long-term performance, evidenced by a 53.02% total return last year.

The company’s 11.08% revenue growth in Q2 2024 aligns with management’s reported annual growth of 12%. However, Clean Harbors trades at a high earnings multiple with a P/E ratio of 32.45, suggesting that investors are pricing in future growth expectations despite recent challenges.

InvestingPro tips highlight that Clean Harbors operates with moderate levels of debt and has liquidity exceeding its short-term liabilities. This financial stability could support the company’s plans for acquisitions and stock buybacks as noted in the earnings call.

The company’s profitability over the past twelve months and analysts' profitability forecasts for this year present positive indicators, especially considering challenges faced in the SKSS segment and the Industrial Services sector.

For investors seeking more comprehensive analysis, InvestingPro provides 11 additional tips on Clean Harbors, offering deeper insights into the company’s financial health and market position.