Net Cash Provided by Operating Activities Grows Nearly 9%, Driven by Strong Organic Revenue Growth in the Collection and Disposal Business
Waste Management Named a Sector Leader on the 2019 North America and World Dow Jones Sustainability Indices
Houston — Oct. 23, 2019 — Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended September 30, 2019. Revenues for the third quarter of 2019 were $3.97 billion compared with $3.82 billion for the same 2018 period. Net income for the quarter was $495 million, or $1.16 per diluted share, compared with $499 million, also $1.16 per diluted share, for the third quarter of 2018.(a) On an adjusted basis net income was $502 million, or $1.19 per diluted share, in the third quarter of 2019, compared with $496 million, or $1.15 per diluted share, in the third quarter of 2018.(b)
The Company’s adjusted third quarter 2019 results exclude a $0.03 per diluted share negative impact from costs incurred in connection with the pending acquisition of Advanced Disposal Services, Inc. and our related reduction of common stock repurchases from planned levels.
“In the third quarter we continued to see our collection and disposal lines of business deliver strong revenue and earnings growth, particularly in the segments of our business that reflect the resilience of the consumer,” said Jim Fish, President and Chief Executive Officer of Waste Management. “This strong operational performance led to growth in cash from operations of almost 9%.
“Another accomplishment in the quarter that we are particularly proud of is our recognition as sector leader on the 2019 North America and World Dow Jones Sustainability Indices for the second year in a row,” Fish continued. “This distinction is a reflection of our leadership in sustainability and recognizes the continued strides we are making in this area.”
Key Highlights for the Third Quarter Of 2019
- Total Company operating EBITDA was $1.14 billion for the third quarter of 2019, an increase of $60 million from the third quarter of 2018.(c) On an adjusted basis, total Company operating EBITDA was $1.14 billion for the third quarter of 2019, an increase of more than $30 million from the third quarter of 2018.(b)
- Operating EBITDA in the Company’s collection and disposal business, adjusted on the same basis as total Company operating EBITDA, increased $94 million, or 7.8%, in the third quarter of 2019 when compared to the third quarter of 2018. As a percentage of revenue, operating EBITDA in the Company’s collection and disposal business increased 50 basis points.
- In the third quarter of 2019, organic revenue growth was driven by strong yield and volume growth in the Company’s collection and disposal business, which contributed $198 million of incremental revenue.
- Core price for the third quarter of 2019 was 5.3%, compared to 5.4% in the third quarter of 2018.(d)
- Internal revenue growth from yield for the collection and disposal business was 2.6% for the third quarter of 2019 versus 2.5% in the third quarter of 2018.
- Collection and disposal business internal revenue growth from volume was 3.3%, or 2.7% on a workday adjusted basis, in the third quarter of 2019. Total Company internal revenue growth from volume, which includes our recycling and other ancillary businesses, was 2.6%, or 1.9% on a workday adjusted basis, in the third quarter.
- The continued decline in market values for recycled commodities, which were down 40% year-over-year in the third quarter, drove a revenue decline of $86 million and presented a more significant headwind in the quarter than anticipated. As a result of continued efforts to advance a fee-for-service business model, the operating EBITDA in the Company’s recycling line of business declined by only $7 million when compared to the third quarter of 2018.
- For the full year, the Company expects the recycling line of business to be a $0.01 to $0.02 per diluted share headwind.
- Operating EBITDA from the sale of renewable natural gas credits declined approximately $8 million from the third quarter of 2018 due to lower market values.
- For the full year, the Company expects the sale of its renewable natural gas credits to be a $0.03 to $0.04 per diluted share headwind.
- As a percentage of revenue, total Company operating expenses were 61.5% in the third quarter of 2019, compared to 62.1% in the third quarter of 2018.
- As a percentage of revenue, SG&A expenses were 9.7% in the third quarter of 2019, compared to 9.0% in the third quarter of 2018. The increase in SG&A expenses as a percentage of revenue was driven by the Company’s planned investments in people and technology.
Free Cash Flow & Capital Allocation
- Net cash provided by operating activities was $952 million in the third quarter of 2019, an increase of $78 million, or 8.9%, when compared to the third quarter of 2018.
- Capital expenditures were $483 million in the third quarter of 2019, a $79 million increase from the third quarter of 2018, due to an intentional focus on accelerating certain fleet and landfill spending to support the Company’s strong collection and disposal growth.
- Free cash flow was $478 million in the third quarter of 2019 compared to $480 million in the third quarter of 2018.(b)
- The Company paid $218 million of dividends to shareholders in the third quarter of 2019.
- The Company spent $76 million on acquisitions of traditional solid waste businesses during the third quarter of 2019.
- The Company’s effective tax rate for the third quarter of 2019 was approximately 19.4%.
Fish concluded, “We are pleased with the performance of our collection and disposal business through the first three quarters of the year, which positions us to achieve our full-year goals. Our original 2019 guidance anticipated significantly higher contributions from our commodity-sensitive businesses than we have seen. The strong results from the collection and disposal business have overcome this impact, and we expect to achieve full-year 2019 results within our guidance range of adjusted operating EBITDA of $4.40 to $4.45 billion, free cash flow of $2.025 to $2.075 billion, and adjusted earnings per diluted share of $4.28 to $4.38.”(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 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 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 Investors 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 2572365 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, November 6, 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 2572365.
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 2019 earnings per diluted share; 2019 operating EBITDA; 2019 free cash flow; and all statements regarding future performance of our collection and disposal business, recycling business, renewable energy business or otherwise. 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; failure of technology to perform as expected; preventing, detecting and addressing cybersecurity incidents; 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 has presented, and/or may discuss on the conference call, adjusted earnings per diluted share, adjusted net income, adjusted operating EBTIDA, adjusted SG&A expenses and free cash flow, as well as projections of adjusted earnings per diluted share, adjusted operating EBITDA, adjusted SG&A expenses as a percentage of revenue, 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) financial measures the Company uses in the management of its business and (ii) 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.
The Company’s non-GAAP results and projections exclude the impact of costs incurred in connection with the pending acquisition of Advanced Disposal Services, Inc. and our related reduction of common stock repurchases from planned levels. In addition, the Company’s projected full year 2019 earnings per diluted share, SG&A expenses as a percentage of revenue, operating EBITDA and tax rate are anticipated to exclude the effects of other 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, and 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 such projections 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, projected SG&A expenses, projected operating EBITDA, and projected tax rate. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP.
FOR MORE INFORMATION:
Web site www.wm.com
Ed Egl, 713.265.1656
Andy Izquierdo, 832.710.5287