Stifel, St. Louis, released an industry update March 22 titled, “Solid Waste: Revising Models for C-19, Volume Down, Price Durable, Deal Flow Slows, FCF Stands Out.” In the update, the investment banking firm outlines the projected impact of the COVID-19 pandemic on solid waste industry participants.
“What public/private company avoids any sales pressure due to C-19? None,” the report states. “We believe the impact on solid waste will look like both 9/11 and the Great Recession. The former was a shock and awe [event], the consumer paused. The latter, the U.S./North American economies were over levered which it is not now but wholesale business shutdowns had a volume impact. Today, solid waste has more control of cost/capital than ever before. Social distancing and big urban settings forcing closure of food, beverage, hospitality and entertainment leads to a big drop in collected volume and commercial customers asking for service on-hold/cancellations. We assume an annual 15 percent hit to volume of 10 percent for third-party commercial, C&D and special waste volume and 5 percent direct commercial collection sales cut in half for two months. Residential volumes will be up, and in many cases, contracts allow for charging for extra bin/bag pick-ups.”
As part of the report, Stifel outlines potential points of stress in residential, commercial/small container, and roll-off/large container collection.
On residential collection:
“This revenue stream is nearly recession proof. The biggest risk is the homeowner walks away from the house and does not pay the bill. Otherwise, if they put the trash out and do not pay, the garbage company does not pick it up. On average residential relationships run over 12 years."
On commercial/small container collection:
“We suspect commercial in hard-hit [COVID-19] shut-in areas are moving to service-on-holds rapidly for April and May. We suspect commercial sales for those two months could be down 25 percent to 50 percent. We are using 50 percent cut for two-months.”
On roll-off/large container collection:
“Unit price for temporary [roll-offs] has proven very durable as solid waste learned in the Great Recession—to quickly park equipment and rationalize the cost structure, pull prices were virtually unchanged. Permanent roll-off is highly recession resistant—a building is rarely vacant. Temporary roll-off is sensitive to construction cycles, residential and non-residential. Normal seasonal ramp in construction is likely to be soft. Home builders are ‘the canary in the coal mine’—as soon as consumers stop buying, they stop building; therefore, watch housing starts carefully. Not just the drop, but what level it settles [at] and how quickly it recovers."
Click here for the full report.