Double-Digit Growth in Net Income and Net Cash Provided by Operating Activity Company Raises Full Year Earnings and Cash Flow Guidance
HOUSTON — October 26, 2017— Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended September 30, 2017. Revenues for the third quarter of 2017 were $3.72 billion compared with $3.55 billion for the same 2016 period. Net income for the quarter was $386 million, or $0.87 per diluted share, compared with net income of $302 million, or $0.68 per diluted share, for the third quarter of 2016.(a) On an as-adjusted basis, net income was $398 million, or $0.90 per diluted share, in the third quarter of 2017, compared with $374 million, or $0.84 per diluted share, in the third quarter of 2016.(b)
The Company’s as-adjusted third quarter 2017 results exclude pre-tax charges of $11 million related to the withdrawal from an underfunded multiemployer pension plan and $9 million related to an increase in environmental remediation reserves.(b)
Jim Fish, President and Chief Executive Officer of Waste Management, commented, “An impressive year-over-year improvement in our traditional solid waste business powered a strong third quarter, continuing the positive momentum we have seen all year. Operating EBITDA grew more than 17% when compared to the third quarter of 2016, or almost 7% on an as-adjusted basis.(b) This is the second consecutive quarter of record-high adjusted operating EBITDA. More importantly, that operating EBITDA performance converted into strong cash flow growth. Our net cash provided by operating activities was also the highest that we have seen in our history. The combination of our strong core price results, higher volumes, and continued cost improvement focus led to adjusted earnings per diluted share growth of more than 7%, despite an estimated negative $0.01 per diluted share impact from hurricanes Harvey and Irma.(b)”
KEY HIGHLIGHTS FOR THE THIRD QUARTER 2017
• Overall revenue increased by 4.7%, or $168 million. The revenue increase was primarily driven by positive yield and volume in the Company’s collection and disposal business, which contributed $93 million to revenue growth, and higher recycling commodity prices, which contributed $60 million of revenue growth.
• Core price, which consists of price increases net of rollbacks, plus fees other than the Company’s fuel surcharge, was 4.7%.(c)
• Internal revenue growth from yield for collection and disposal operations was 2.0%.
• Internal revenue growth from volume in the Company’s traditional solid waste business was 1.6% and 2.0% on a workday adjusted basis. Total Company internal revenue growth from volume was 0.7% and 1.1% on a workday adjusted basis.
• As a percent of revenue, operating expenses were 61.9% in the third quarter of 2017, as compared to 62.5% in the third quarter of 2016. Adjusting for the withdrawal from a multiemployer pension plan, operating expenses as a percent of revenue were 61.7% in the third quarter of 2017.(b) Operating expenses as a percentage of revenue in the Company’s traditional solid waste business improved about 125 basis points during the quarter, despite the impact of hurricane related expenses and higher fuel costs.
• As a percent of revenue, SG&A expenses were 9.6%, compared to 9.3% in the third quarter of 2016. The increase is largely attributable to a prior year favorable insurance recovery.
• Net cash provided by operating activities was $856 million, compared to $758 million in the third quarter of 2016, an increase of 12.9%. The increase was driven by the Company’s strong operating income growth and working capital improvements.
• Capital expenditures were $350 million, compared to $333 million in the third quarter of 2016.
• Free cash flow was $512 million, compared to $433 million in the third quarter of 2016, an increase of 18.2%.(b)
• The Company returned $685 million to shareholders during the quarter, paying $185 million in dividends and repurchasing $500 million of its common stock.
• The effective tax rate was approximately 35.7%, or 35.8% on an as-adjusted basis. (b)
Fish concluded, “Based on our results through the first nine months of the year, we are raising our full-year 2017 guidance of adjusted earnings per diluted share to between $3.19 and $3.21 and free cash flow to between $1.7 and $1.75 billion, despite an anticipated negative $0.03 per diluted share impact from our recycling operations in the fourth quarter. (b) The strength of our business is evident in the growth of our operating EBITDA and our cash conversion rate, and we expect our strong performance to continue into the fourth quarter and 2018.”
(a) For purposes of this press release, all references to “Net income” refer to the financial statement line items “Net income attributable to Waste Management, Inc.”.
(b) This press release contains a discussion of non-GAAP 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. Accordingly, net income, earnings per diluted share, operating expenses as a percentage of revenue, effective tax rate, and operating EBITDA have been presented in certain instances excluding items identified in the reconciliations provided. The Company defines operating EBITDA as income from operations before depreciation and amortization; this measure may not be comparable to similarly titled measures reported by other companies.
The Company’s projected full-year 2017 earnings per diluted share is not based on GAAP net earnings per diluted share and are anticipated to be adjusted to exclude the effects of events or circumstances in 2017 that are not representative or indicative of the Company’s results of operations, including the items excluded from our as-adjusted first and third quarter results. Projected GAAP earnings per diluted share for the full year would require inclusion of the projected impact of future excluded items, including items that 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 to a GAAP earnings per diluted share projection.
The Company also discusses free cash flow and provides a projection of free cash flow. Free cash flow is a non-GAAP measure. 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 U.S. GAAP measure. However, the Company believes free cash flow gives investors useful insight into how the Company views its liquidity. Nevertheless, 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. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP, and investors are urged to take into account GAAP measures as well as non-GAAP measures in evaluating the Company.
(c) Core price is a performance metric used by management to evaluate the effectiveness of the Company’s pricing strategies; it is not derived from the Company’s financial statements and may not be comparable to measures presented by other companies. Core price is based on certain historical assumptions, which differs 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 third quarter 2017 results. 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 93100733 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) Thursday, October 26, 2017 through 5:00 PM (Eastern) on Thursday, November 9, 2017. 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 93100733.
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 2017 earnings per diluted share; 2017 free cash flow; and all statements regarding future business performance and growth. 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 such acquisitions; failure to obtain the results anticipated from acquisitions; environmental and other regulations; commodity price fluctuations; 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 exposure to litigation and 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, for additional information regarding these and other risks and uncertainties applicable to our 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.
ABOUT WASTE MANAGEMENT
Waste Management, based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the company provides collection, transfer, recycling and resource recovery, and disposal services. 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.
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Source: Waste Management, Inc.
Ed Egl, 713.265.1656