Company Grows Cash from Operations by 10% in
the First Quarter; Reaffirms Full-Year Guidance, Excluding
Acquisition-Related Considerations
Waste Management, Inc. (NYSE: WM) today announced financial
results for its quarter ended March 31, 2019. Revenues for the
first quarter of 2019 were $3.70 billion compared with $3.51
billion for the same 2018 period. Net income for the quarter was
$347 million, or $0.81 per diluted share, compared with $396
million, or $0.91 per diluted share, for the first quarter of
2018.(a) On an adjusted basis in the first quarter of 2019, net
income was $402 million, or $0.94 per diluted share.(b) There was
no adjustment to reported earnings in the first quarter of
2018.
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2019 Q1 Earnings Overview (Graphic:
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The Company’s adjusted first quarter 2019 results exclude a
$0.13 per diluted share charge primarily related to a non-cash
impairment of an investment in a waste conversion technology
business.
“The strong results we generated in the first quarter
demonstrate that delivering an outstanding customer experience and
focusing on continuous improvement produce solid growth in our
business,” said Jim Fish, President and Chief Executive Officer of
Waste Management. “In the first quarter, we saw organic revenue
growth of more than 6% in our collection and disposal business,
which translated into about a 7% increase in operating EBITDA in
that business.(c) More importantly, this strong operational
performance resulted in net cash provided by operating activities
increasing by 10% when compared to 2018.
“The focus and discipline of our employees continue to drive
exceptional results. That discipline is also evident in our
recycling line of business, where the steps we took to improve the
business increased operating EBITDA by $11 million when compared to
the first quarter of 2018, despite a 28% decline in recycling
commodity prices. The great start to 2019 puts us well on our way
to meeting our targets for the full year.”
KEY HIGHLIGHTS FOR THE FIRST QUARTER OF 2019
Profitability
- Total Company operating EBITDA was $987
million for the first quarter of 2019, an increase of $32 million,
or 3.4%, from the first quarter of 2018. The Company achieved this
increase without the benefit of the expired federal natural gas
fuel credits that added $28 million to operating EBITDA in the
first quarter of 2018.
- Operating EBITDA in the Company’s
collection and disposal business increased $76 million, or about
7.0%, in the first quarter of 2019 when compared to the first
quarter of 2018.
Revenue
Growth
- In the first quarter of 2019, revenue
growth was driven by strong yield and volume growth in the
Company’s collection and disposal business, which contributed $190
million of incremental revenue. This was partially offset by a $16
million decline in revenue from the Company’s recycling line of
business on a year-over-year basis in the first quarter of
2019.
- Core price for the first quarter of
2019 was 5.8%, compared to 4.9% in the first quarter of
2018.(d)
- Internal revenue growth from yield for
the collection and disposal business was 2.7% for the first quarter
of 2019 versus 2.3% in the first quarter of 2018.
- Collection and disposal business
internal revenue growth from volume was 3.6%, or 4.1% on a workday
adjusted basis, in the first quarter of 2019. Total Company
internal revenue growth from volume, which includes our recycling
business, was 3.4%, or 4.0% on a workday adjusted basis, in the
first quarter of 2019.
Recycling
- Average recycling commodity prices at
the Company’s facilities were approximately 28% lower in the first
quarter of 2019 compared to the prior year period. Recycling
brokerage volumes increased 7.1% in the first quarter of 2019 on a
workday adjusted basis.
- Operating EBITDA in the Company’s
recycling line of business improved by $11 million from breakeven
in the first quarter of 2018. The improvement was driven by the
Company’s efforts to develop a sustainable business model that
meets customers’ environmental needs.
Cost
Management
- As a percent of revenue, total Company
operating expenses were 62.2% in both the first quarter of 2019 and
2018. The Company’s focus on improving efficiency in its collection
business, controlling costs and maintaining discipline in its
pricing programs delivered margin expansion sufficient to offset an
80-basis point headwind from federal natural gas fuel credits
received in 2018.
- As a percentage of revenue, SG&A
expenses were 11.1% in the first quarter of 2019 compared to 10.6%
in the first quarter of 2018. The increase was primarily related to
planned investments in technology as well as litigation
reserves.
Free Cash Flow &
Capital Allocation
- Net cash provided by operating
activities was $890 million in the first quarter of 2019, an
increase of $81 million, or 10.0%, when compared to the first
quarter of 2018.
- Capital expenditures were $471 million
in the first quarter of 2019, a $71 million increase from the first
quarter of 2018.
- Free cash flow was $431 million in the
first quarter of 2019 compared to $423 million in the first quarter
of 2018.(b)
- The Company paid $223 million of
dividends to shareholders. Cash allocated to share repurchases of
$68 million in the first quarter of 2019 was less than both prior
year and the Company’s plan due to completed and contemplated
acquisition spending.
- The Company spent $394 million on
acquisitions during the first quarter of 2019.
Taxes
- The Company’s effective tax rate for
the first quarter of 2019 was approximately 24.8%. On an adjusted
basis, the Company’s tax rate was 22.2%. The Company expects its
2019 full-year adjusted tax rate to be approximately 24%.(b)
Fish concluded, “We are poised for another successful year at
Waste Management. As we indicated when we announced our agreement
to acquire Advanced Disposal Services last week, exclusive of
acquisition-related considerations, we are on track to achieve our
full-year 2019 guidance of adjusted earnings per diluted share of
between $4.28 and $4.38, adjusted operating EBITDA of between $4.40
and $4.45 billion, and free cash flow of between $2.025 and $2.075
billion.” (b)
(a) For purposes
of this press release, all references to “Net income” refer to the
financial statement line item “Net income attributable to Waste
Management, Inc.” (b) Adjusted earnings per diluted share,
adjusted net income, adjusted tax rate, adjusted operating EBITDA
and free cash flow are non-GAAP measures. Please see “Non-GAAP
Financial Measures” below and the reconciliations in the
accompanying schedules for more information. (c) Management
defines operating EBITDA as GAAP income from operations before
depreciation and amortization; this measure may not be comparable
to similarly-titled measures reported by other companies.
(d) Core price consists of price increases net of rollbacks and
fees, excluding the Company’s fuel surcharge. It is a performance
metric used by management to evaluate the effectiveness of our
pricing strategies; it is not derived from our financial statements
and may not be comparable to measures presented by other companies.
Core price is based on certain historical assumptions, which may
differ from actual results, to allow for comparability between
reporting periods and to reveal trends in results over time.
The Company will host a conference call at 10:00 AM (Eastern)
today to discuss the first quarter results as well as the agreement
to acquire Advanced Disposal Services, Inc., that was previously
announced on April 15. Information contained within this press
release will be referenced and should be considered in conjunction
with the call.
The conference call will be webcast live from the Investor
Relations section of Waste Management’s website www.wm.com. To
access the conference call by telephone, please dial (877) 710-6139
approximately 10 minutes prior to the scheduled start of the call.
If you are calling from outside of the United States or Canada,
please dial (706) 643-7398. Please utilize conference ID number
4295916 when prompted by the conference call operator.
A replay of the conference call will be available on the
Company’s website www.wm.com and by telephone from approximately
1:00 PM (Eastern) today through 5:00 PM (Eastern) on Thursday, May
9, 2019. To access the replay telephonically, please dial (855)
859-2056, or from outside of the United States or Canada dial (404)
537-3406, and use the replay conference ID number 4295916.
ABOUT WASTE MANAGEMENT
Waste Management, based in Houston, Texas, is the leading
provider of comprehensive waste management environmental services
in North America. Through its subsidiaries, the Company provides
collection, transfer, disposal services, and recycling and resource
recovery. It is also a leading developer, operator and owner of
landfill gas-to-energy facilities in the United States. The
Company’s customers include residential, commercial, industrial,
and municipal customers throughout North America. To learn more
information about Waste Management, visit www.wm.com or
www.thinkgreen.com.
FORWARD-LOOKING STATEMENTS
The Company, from time to time, provides estimates of financial
and other data, comments on expectations relating to future periods
and makes statements of opinion, view or belief about current and
future events. This press release contains a number of such
forward-looking statements, including but not limited to statements
regarding 2019 earnings per diluted share; 2019 operating EBITDA;
2019 free cash flow; 2019 tax rate; acquisition of Advanced
Disposal Services, Inc.; future strong results and business
success. You should view these statements with caution. They are
based on the facts and circumstances known to the Company as of the
date the statements are made. These forward-looking statements are
subject to risks and uncertainties that could cause actual results
to be materially different from those set forth in such
forward-looking statements, including but not limited to, increased
competition; pricing actions; failure to implement our
optimization, growth, and cost savings initiatives and overall
business strategy; failure to identify acquisition targets and
negotiate attractive terms; failure to consummate or integrate the
acquisition of Advanced Disposal Services, Inc. or other
acquisitions; failure to obtain the results anticipated from the
acquisition of Advanced Disposal Services, Inc. or other
acquisitions; environmental and other regulations; commodity price
fluctuations; international trade restrictions; disposal
alternatives and waste diversion; declining waste volumes; failure
to develop and protect new technology; significant environmental or
other incidents resulting in liabilities and brand damage; weakness
in economic conditions; failure to obtain and maintain necessary
permits; labor disruptions; impairment charges; and negative
outcomes of litigation or governmental proceedings. Please also see
the Company’s filings with the SEC, including Part I, Item 1A of
the Company’s most recently filed Annual Report on Form 10-K as
updated by our subsequent quarterly reports on Form 10-Q, for
additional information regarding these and other risks and
uncertainties applicable to its business. The Company assumes no
obligation to update any forward-looking statement, including
financial estimates and forecasts, whether as a result of future
events, circumstances or developments or otherwise.
NON-GAAP FINANCIAL MEASURES
To supplement its financial information, the Company, in some
instances, has presented adjusted earnings per diluted share,
adjusted net income, adjusted tax rate and free cash flow, and has
also presented projections of adjusted earnings per diluted share,
adjusted operating EBITDA, adjusted tax rate and free cash flow;
these are non-GAAP financial measures, as defined in Regulation G
of the Securities Exchange Act of 1934, as amended. The Company
reports its financial results in compliance with GAAP but believes
that also discussing non-GAAP measures provides investors with (i)
additional, meaningful comparisons of current results to prior
periods’ results by excluding items that the Company does not
believe reflect its fundamental business performance and are not
representative or indicative of its results of operations and (ii)
financial measures the Company uses in the management of its
business.
The Company’s projected full year 2019 earnings per diluted
share, operating EBITDA and tax rate are anticipated to exclude the
effects of events or circumstances in 2019 that are not
representative or indicative of the Company’s results of
operations. Such excluded items are not currently determinable, but
may be significant, such as asset impairments and one-time items,
charges, gains or losses from divestitures or litigation, or other
items. Due to the uncertainty of the likelihood, amount and timing
of any such items, the Company does not have information available
to provide a quantitative reconciliation of adjusted projected
full-year earnings per diluted share, operating EBITDA or tax rate
to the comparable GAAP measures.
The Company discusses free cash flow because the Company
believes that it is indicative of its ability to pay its quarterly
dividends, repurchase common stock, fund acquisitions and other
investments and, in the absence of refinancings, to repay its debt
obligations. Free cash flow is not intended to replace “Net cash
provided by operating activities,” which is the most comparable
GAAP measure. The Company believes free cash flow gives investors
useful insight into how the Company views its liquidity, but the
use of free cash flow as a liquidity measure has material
limitations because it excludes certain expenditures that are
required or that the Company has committed to, such as declared
dividend payments and debt service requirements. The Company
defines free cash flow as net cash provided by operating
activities, less capital expenditures, plus proceeds from
divestitures of businesses and other assets (net of cash divested);
this definition may not be comparable to similarly-titled measures
reported by other companies.
The quantitative reconciliations of non-GAAP measures used
herein to the most comparable GAAP measures are included in the
accompanying schedules, with the exception of projected earnings
per diluted share, operating EBITDA and tax rate. Non-GAAP measures
should not be considered a substitute for financial measures
presented in accordance with GAAP.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
(In Millions, Except per Share
Amounts)
(Unaudited)
Three Months Ended March 31, 2019
2018 Operating revenues $ 3,696 $ 3,511 Costs
and expenses: Operating 2,298 2,184 Selling, general and
administrative 409 373 Depreciation and amortization 366 347
Restructuring 2 2 Net gain from divestitures —
(3 ) 3,075 2,903 Income from operations
621 608 Other income (expense):
Interest expense, net (96 ) (91 ) Equity in net losses of
unconsolidated entities (9 ) (7 ) Other, net (54 ) 1
(159 ) (97 ) Income before income taxes 462
511 Income tax expense 115 116
Consolidated net income 347 395 Less: Net loss attributable to
noncontrolling interests — (1 ) Net income
attributable to Waste Management, Inc. $ 347 $ 396
Basic earnings per common share $ 0.82 $ 0.91 Diluted
earnings per common share $ 0.81 $ 0.91 Weighted
average basic common shares outstanding 424.5
433.3 Weighted average diluted common shares outstanding
426.9 435.8
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In Millions)
(Unaudited)
March 31, December 31, 2019 2018
ASSETS Current assets: Cash and cash equivalents $ 57 $ 61
Receivables, net 2,081 2,275 Other 350 309 Total
current assets 2,488 2,645 Property and equipment, net 12,390
11,942 Goodwill 6,479 6,430 Other intangible assets, net 570 572
Other 1,446 1,061 Total assets $ 23,373 $ 22,650
LIABILITIES AND EQUITY Current liabilities: Accounts
payable, accrued liabilities and deferred revenues $ 2,569 $ 2,676
Current portion of long-term debt 1,043 432 Total
current liabilities 3,612 3,108 Long-term debt, less current
portion 9,323 9,594 Other 4,021 3,672 Total
liabilities 16,956 16,374 Equity: Waste Management,
Inc. stockholders’ equity 6,415 6,275 Noncontrolling interests
2 1 Total equity 6,417 6,276 Total
liabilities and equity $ 23,373 $ 22,650
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In Millions)
(Unaudited)
Three Months Ended March 31, 2019
2018 Cash flows from operating activities: Consolidated net
income $ 347 $ 395 Adjustments to reconcile consolidated net income
to net cash provided by operating activities: Depreciation and
amortization 366 347 Other 123 42 Change in operating assets and
liabilities, net of effects of acquisitions and divestitures
54 25 Net cash provided by operating activities
890 809 Cash flows from investing
activities: Acquisitions of businesses, net of cash acquired (394 )
(246 ) Capital expenditures (471 ) (400 ) Proceeds from
divestitures of businesses and other assets (net of cash divested)
12 14 Other, net 53 (5 ) Net cash used in
investing activities (800 ) (637 ) Cash flows from
financing activities: New borrowings — 61 Debt repayments (56 ) (80
) Net commercial paper borrowings 357 471 Common stock repurchase
program (68 ) (250 ) Cash dividends (223 ) (206 ) Exercise of
common stock options 25 23 Tax payments associated with
equity-based compensation transactions (30 ) (28 ) Other, net
37 (29 ) Net cash provided by (used in)
financing activities 42 (38 ) Effect of
exchange rate changes on cash, cash equivalents and restricted cash
and cash equivalents — (1 ) Increase in cash,
cash equivalents and restricted cash and cash equivalents 132 133
Cash, cash equivalents and restricted cash and cash equivalents at
beginning of period 183 293 Cash, cash
equivalents and restricted cash and cash equivalents at end of
period $ 315 $ 426
WASTE MANAGEMENT, INC.
SUMMARY DATA SHEET
(In Millions)
(Unaudited)
Operating Revenues by Line of
Business
Three Months Ended March 31, 2019
2018 Commercial $ 1,026 $ 955 Residential 640 614 Industrial
680 637 Other 109 101 Total collection
2,455 2,307 Landfill 864 805 Transfer 412 375 Recycling 291 312
Other 431 427 Intercompany (a) (757 ) (715 ) Total $
3,696 $ 3,511
Internal Revenue Growth
Period-to-Period Change for theThree Months
EndedMarch 31, 2019 vs. 2018 As a % of As a %
of Related Total Amount Business(b)
Amount Company(c) Collection and disposal $ 82 2.7 %
Recycling commodities (25 ) (8.4 ) Fuel surcharges and mandated
fees 5 3.7 Total average yield (d) $ 62 1.8 % Volume
117 3.4 Internal revenue growth 179 5.2
Acquisitions 57 1.6 Divestitures (42 ) (1.2 ) Foreign currency
translation (9 ) (0.3 ) Total $ 185 5.3 %
Period-to-Period Change for the Three Months Ended
March 31, 2019 vs. 2018 As a % of Related Business(b)
Yield
Volume(e) Commercial 2.3 % 2.4 % Industrial 4.2 3.1
Residential 3.8 (0.5 ) Total collection 3.2 2.1 MSW 3.4 5.8
Transfer 2.7 8.1 Total collection and disposal 2.7 % 4.1 %
__________________________
(a) Intercompany revenues between lines of business are
eliminated in the Condensed Consolidated Financial Statements
included herein. (b) Calculated by dividing the increase or
decrease for the current year period by the prior year period’s
related business revenue adjusted to exclude the impacts of
divestitures for the current year period. (c) Calculated by
dividing the increase or decrease for the current year period by
the prior year period’s total Company revenue adjusted to exclude
the impacts of divestitures for the current year period. (d) The
amounts reported herein represent the changes in our revenue
attributable to average yield for the total Company. (e) Workday
adjusted volume impact.
WASTE
MANAGEMENT, INC. SUMMARY DATA SHEET (In
Millions) (Unaudited) Free Cash Flow
Analysis (a) Three Months Ended March 31,
2019 2018 Net cash provided by operating activities $
890 $ 809 Capital expenditures (471 ) (400 ) Proceeds from
divestitures of businesses and other assets (net of cash divested)
12 14 Free cash flow $ 431 $ 423
Three Months Ended March 31,
2019 2018 Supplemental Data
Internalization of waste, based on disposal costs 66.2 % 65.2 %
Landfill amortizable tons (in millions) 27.9 26.2
Acquisition Summary (b) Gross annualized revenue
acquired 105 158 Total consideration, net of cash acquired
395 246 Cash paid for acquisitions consummated during the
period, net of cash acquired 389 238 Cash paid for
acquisitions including contingent consideration and other items
from prior periods, net of cash acquired 394 248
Amortization, Accretion and Other Expenses for Landfills:
Three Months Ended March 31, 2019 2018
Landfill amortization expense Cost basis of landfill assets $ 110.0
$ 100.0 Asset retirement costs 16.8 19.6
Total landfill amortization expense 126.8 119.6 Accretion
and other related expense 24.5 24.2
Landfill amortization, accretion and other related expense $ 151.3
$ 143.8
(a) The summary of free cash
flow has been prepared to highlight and facilitate understanding of
the principal cash flow elements. Free cash flow is not a measure
of financial performance under generally accepted accounting
principles and is not intended to replace the consolidated
statement of cash flows that was prepared in accordance with
generally accepted accounting principles.
(b) Represents
amounts associated with business acquisitions consummated during
the applicable period except where noted.
WASTE MANAGEMENT, INC.
RECONCILIATION OF CERTAIN NON-GAAP MEASURES (In Millions,
Except Per Share Amounts) (Unaudited)
Three Months Ended
March 31, 2019
Income fromOperations
Pre-taxIncome
TaxExpense
NetIncome (a)
Diluted
PerShareAmount
As reported amounts $ 621 $ 462
$ 115 $ 347 $ 0.81
Adjustments: Impairment of an investment and other -
55 - 55 0.13
As
adjusted amounts $ 621 $ 517
$ 115 (b) $ 402 $
0.94 2019 Projected Free Cash Flow
Reconciliation (c) Scenario 1 Scenario 2 Net cash
provided by operating activities $ 3,625 $ 3,725 Capital
expenditures (1,650 ) (1,750 ) Proceeds from divestitures of
businesses and other assets (net of cash divested) 50
100
Free cash flow $ 2,025
$ 2,075
________________________________________________
(a) For purposes of this press release table, all
references to "Net income" refer to the financial statement line
item "Net income attributable to Waste Management, Inc.".
(b) The Company calculates its effective tax rate based on
actual dollars. When the effective tax rate is calculated by
dividing the Tax Expense amount in the table above by the Pre-tax
Income amount, differences occur due to rounding, as these items
have been rounded in millions. The first quarter 2019 adjusted
effective tax rate was 22.2%.
(c) The reconciliation
includes two scenarios that illustrate our projected free cash flow
range for 2019. The amounts used in the reconciliation are subject
to many variables, some of which are not under our control and,
therefore, are not necessarily indicative of actual results.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190425005465/en/
Waste Management
Web sitewww.wm.com
AnalystsEd Egl713.265.1656eegl@wm.com
MediaTiffiany Moehring720.346.5372tmoehrin@wm.com
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