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Veolia Environnement Returns to Growth With First-Quarter 2017 Earnings

By Maxx Chatsko - May 9, 2017 at 11:33AM

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Just about everything went according to plan to open the year, which allowed management to keep its original financial guidance intact.

There were no surprises for Veolia Environnement (VEOEY 1.84%) shareholders in the first quarter of 2017. Revenue grew at a healthy clip, several unusual expenses piled up, and cost-saving measures accelerated to offset exceptional one-time charges -- all of which management fully expected.

The financial results from the most recent quarter were good news for the obvious reason that the numbers and growth were encouraging, and for the less obvious reason that the long-term strategy for the global water -treatment and waste-management specialist remains on track. Here's what investors need to know about the first-quarter 2017 performance.

A water treatment facility settling tank.

Image source: Getty Images.

By the numbers

The first quarter confirmed management's expectations for the start of 2017, which provides confidence that Veolia Environnement remains on track to reach its full-year and longer-term goals. Importantly, while revenue pulled back in the home country of France, Europe sales (excluding France) saw favorable growth, and expanding business opportunities in Asia and Latin America pushed the rest of world segment well over double-digit year-over-year growth. 

Meanwhile, while the water business saw declining sales, that was more than offset by strong growth in waste and energy services. Here's a look at the most important metrics from the quarter:

Metric

Q1 2017

Q1 2016

% Change

Revenue

$6.83 billion

$6.53 billion

4.6%

EBITDA

$940.7 million

$931.9 million

0.9%

Net income

$168.9 million

$161.3 million

4.8%

Net free cash flow

($426.2 million)

($407.7 million)

N/A

Data source: Veolia Environnement. All percentages include effects from exchange rates. 

The strong start gave management all the confidence it needed to reaffirm its previously issued full-year 2017 financial guidance, which calls for the resumption of revenue growth after years of decline, stable EBITDA compared with 2016 or even moderate growth, and up to $270 million in additional cost savings. The company achieved approximately $71 million in cost savings during the first quarter. 

Veolia Environnement also reaffirmed its full-year 2018 guidance, which calls for the resumption of EBITDA growth and cost savings of an additional $300 million, and full-year 2019 guidance, which calls for EBITDA between $3.5 billion and $3.72 billion at constant exchange rates (using 2016 as the basis). While these could change in any future quarter, the final target compares quite favorably with the $3.24 billion in EBITDA achieved last year. 

Several long-term contracts won during the first quarter provide support for the company's long-term outlook. They include nearly $700 million in long-term municipal contracts in England and Sri Lanka and just shy of $1 billion in long-term industrial contracts in China.

Investors may notice an interesting trend in the quarterly performance and the recent spate of contracts announced. In particular, while the water-treatment business rakes in 42% of the company's overall sales, the waste and energy business units, which comprise 34% and 24% of revenue, respectively, are seeing the fastest year-over-year growth and garnering the most interest from global customers. It may only be a matter of time before they overtake water -- historically the face of the company -- as the top two segments. 

The takeaway for investors

The global water-treatment and waste-management leader continues to execute against its near- and long-term goals. The return of revenue growth -- as management expected -- is an encouraging sign, especially in the face of headwinds posed by currency exchange rates that weighed heavily on operations just a few short quarters ago. It's yet another example that slow and steady progress, accumulated over time, is an individual investor's best friend. 

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