Strong Organic Revenue Growth Produced Robust Earnings and Cash Generation
HOUSTON — October 25, 2018 — Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended September 30, 2018. Revenues for the third quarter of 2018 were $3.82 billion, compared with $3.72 billion for the same 2017 period. Net income for the quarter was $499 million, or $1.16 per diluted share, compared with $386 million, or $0.87 per diluted share, for the third quarter of 2017.(a) On an as-adjusted basis, excluding certain items, net income was $496 million, or $1.15 per diluted share, in the third quarter of 2018, compared with $398 million, or $0.90 per diluted share, in the third quarter of 2017.(b)
The Company’s as-adjusted third quarter 2018 results exclude a $0.06 per diluted share benefit primarily resulting from favorable adjustments related to tax reform and changes in state tax laws and non-cash charges of $0.05 per diluted share primarily related to the impairment of a disposal asset.
“The recurring theme for the first two quarters of 2018 was one of historically strong solid waste performance more than overcoming a weak recycling market,” said Jim Fish, President and Chief Executive Officer of Waste Management. “In the third quarter, we generated strong operating EBITDA growth, and we expect that growth to accelerate in the fourth quarter and into 2019.(c) Our collection and disposal business generated strong organic revenue growth of 6.4% as a result of our strengthening core price and volume.(d) Additionally, we demonstrated disciplined cost control, particularly on the SG&A line. We executed very well on our plans to refine our recycling pricing model, and we saw tangible benefits from the investments we are making in our employees.”
KEY HIGHLIGHTS FOR THE THIRD QUARTER 2018
• In the third quarter, revenue growth was driven by strong yield and volume growth in the Company’s collection and disposal business, which contributed $200 million of incremental revenue. This was partially offset by a decline in revenue from the Company’s recycling line of business, which fell by $52 million year-over-year in the third quarter of 2018.
• Core price, which consists of price increases net of rollbacks and fees, excluding the Company’s fuel surcharge, was 5.4%, compared to 4.7% in the third quarter of 2017.(c)
• Internal revenue growth from yield for collection and disposal operations was 2.5% for the third quarter of 2018 versus 2.0% in the third quarter of 2017.
• Traditional solid waste internal revenue growth from volume was 3.2%, or 3.4% on a workday adjusted basis, in the third quarter of 2018. Total Company internal revenue growth from volume, which includes our recycling and other ancillary businesses, was 4.2%, or 4.4% on a workday adjusted basis, in the third quarter.
• Average recycling commodity prices at the Company’s facilities were approximately 47% lower in the third quarter of 2018 compared to the prior year period. Results for the Company’s recycling line of business declined by approximately $0.04 per diluted share when compared to the third quarter of 2017. The Company continues to expect the full-year impact from recycling to be a negative $0.17 to $0.20 per diluted share.
Cost Management & Profitability
• As a percentage of revenue, total Company operating expenses were 62.1% in the third quarter of 2018 compared to 61.9% in the third quarter of 2017. The increase in operating expense is primarily driven by core solid waste volume growth, acquisitions, inflationary cost pressures and investments being made in the Company’s employees.
• As a percentage of revenue, SG&A expenses were 9.0% in the third quarter of 2018 compared to 9.6% in the third quarter of 2017.
• Operating EBITDA was $1.08 billion for the third quarter.(d) Adjusted operating EBITDA was $1.11 billion for the third quarter of 2018, an increase of $36 million, or 3.4%, from the third quarter of 2017.(b)
Free Cash Flow & Capital Allocation
• Net cash provided by operating activities was $874 million in the third quarter of 2018, compared to $853 million in the third quarter of 2017.
• Capital expenditures were $404 million in the third quarter of 2018, a $54 million increase from the third quarter of 2017.
• Free cash flow was $480 million in the third quarter of 2018, compared to $509 million in the third quarter of 2017.(b) The decrease in the current quarter free cash flow was driven by increased capital spending as the Company continues to invest in its fleet and disposal network to support growth.
• The Company paid $199 million in dividends to shareholders and spent $200 million to repurchase shares in the third quarter of 2018.
• The Company spent $79 million on acquisitions of traditional solid waste businesses during the third quarter of 2018.
• The Company’s effective tax rate for the third quarter of 2018 was approximately 16.6%. Adjusting for items excluded from the Company’s as-adjusted results, the tax rate was 21.3%.(b)
UPDATED 2018 COMPANY GUIDANCE(b)
• The Company’s adjusted earnings per share guidance range increased from $4.05 to $4.10 to $4.13 to $4.15.
• The Company expects to meet or exceed analysts’ current 2018 consensus for adjusted operating EBITDA of $4.204 billion and narrows its range to $4.2 billion to $4.22 billion.
• The Company expects to meet or exceed analysts’ current 2018 consensus of $1.95 billion for free cash flow and narrows its range to $1.95 billion to $2.0 billion.
“I’m enthusiastic about the direction of the company,” Fish said. “We continue to deliver strong financial and operational performance, and we have promoted strong leaders to continue our high standard of operational excellence. With the hard work our employees have demonstrated so far, I am confident that we can achieve our goals for the remainder of this year and set the stage for an even better 2019.”
(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 operating EBITDA, adjusted tax rate, 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 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 a.m. (Eastern) today to discuss the third quarter 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 6079618 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 p.m. (Eastern) today through 5:00 p.m. (Eastern), on Thursday, November 15, 2018. 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 6079618.
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.
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 2018 earnings per diluted share; 2018 free cash flow; 2018 operating EBITDA; future performance of the solid waste business and future performance of the recycling business, including impact to earnings per share. 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; 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, 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.
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 operating EBITDA, adjusted tax rate and free cash flow, and has also discussed projections of adjusted earnings per diluted share, adjusted operating EBITDA, 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 2018 earnings per diluted share and operating EBITDA are anticipated to exclude the effects of events or circumstances in 2018 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 or operating EBITDA 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 and operating EBITDA. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP.
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Source: Waste Management, Inc.
Ed Egl, 713.265.1656
Tiffiany Moehring, 720.346.5372