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Covanta Holding Corporation (CVA - Snapshot Report) reported adjusted earnings per share of 28 cents in the third quarter of 2013, surpassing the Zacks Consensus Estimate of 27 cents by a penny.

The third quarter earnings were also higher than the year-ago figure of 25 cents per share by 12%.

GAAP earnings were 22 cents versus 19 cents in the year-ago quarter. The difference between operating and GAAP earnings in the reported quarter was due to a 6-cent, one-time impact coming from net write off of assets and other small charges.

Total Revenue

Total revenue was $427.0 million in the quarter, outpacing the Zacks Consensus Estimate by 1.2%. The third quarter top-line also surpassed the year-ago figure of $412.0 million by 3.6%.

The year-over-year increase in revenue was attributable to higher energy revenue coming form contract transitions and the execution of organic growth initiatives such as special waste and metal recovery. This increase was partially offset by lower biomass revenue and lower revenues earned to service project debt.

Operating Highlights

Operating expenses in the third quarter were $347 million, up 4.8% from the year-ago quarter owing to higher plant maintenance costs and depreciation as well as amortization expenses.

Operating income in the quarter at $80 million was marginally lower than $81 million in the year-ago quarter.

Financial Highlights

Cash and cash equivalents as of Sep 30, 2013 were $252.0 million, down from $246.0 million as of Dec 31, 2012.

Long-term debts as of Sep 30, 2013 were $1,574.0 million versus $2,012.0 million as of Dec 31, 2012.

Cash flow from operating activities in the nine months ending Sep 30, 2013 was $267.0 million compared with $268.0 million in the nine months ending Sep 30, 2012.

Shareholder Returns and Liquidity

Covanta Holding continues to enhance shareholder wealth through share buyback and dividend payments. In the first nine months of 2013, Covanta Holding returned $99 million via dividend and share buyback. As of Sep 30, 2013, the company had remaining share repurchase authorization of $116 million.


Covanta Holding lowered its guidance for full year 2013, primarily due to unscheduled outages, lower-than-expected steam demand and a sluggish pace of organic growth.

The company lowered its earnings estimates to a range of 33 cents to 43 cents from the prior range of 40 cents to 50 cents per share. Free cash flow for 2013 is expected in the range of $220–$240 million, down from the prior range of $250–$280 million.

Adjusted Earnings before Interest, Tax, Depreciation and Amortization (EBITDA) is now projected in the range of $480–$495 million, down from the prior range of $500–$530 million.

Other Upcoming Releases

Gevo, Inc. (GEVO - Snapshot Report) is scheduled to release its third quarter earnings after the market closes on Nov 5. The Zacks Consensus Estimate is currently at a loss of 35 cents per share.

Waste Management, Inc. (WM - Analyst Report) is scheduled to release its third quarter earnings on Oct 29. The Zacks Consensus Estimate is currently at 62 cents per share.

Ormat Technologies, Inc. (ORA - Snapshot Report) is scheduled to release its third quarter earnings after the market closes on Nov 5. The Zacks Consensus Estimate is currently at 32 cents per share.

Our View

Though Covanta Holding maintained its earnings beat streak, the results were lower than the company’s expectation. This has prompted the management to revise its guidance for 2013 downwards.

However, the signing of a 20-year waste transport and disposal agreement with the New York City Department of Sanitation, in the reported quarter, will ensure steady revenue stream.

Despite investing regularly in the maintenance of its facilities, unscheduled outages will definitely raise doubts about the quality of the maintenance work done at its facilities.

Covanta Holding currently carries a Zacks Rank #4 (Sell).

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