WM CEO talks earnings, ADS acquisition and the company’s focus on landfills

WM CEO talks earnings, ADS acquisition and the company’s focus on landfills

Jim Fish talks about the company’s second-quarter financial performance, the pending acquisition of Advanced Disposal and how it is investing in landfills.

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Waste Management, Houston, announced its second-quarter earnings July 25. Here are some highlights of the report and the subsequent earnings call with CEO Jim Fish.

  • Revenues for the second quarter of 2019 were $3.95 billion compared with $3.74 billion for the same 2018 period. Net income for the quarter was $381 million, or 89 cents per diluted share, compared with $499 million, or $1.15 per diluted share, for the second quarter of 2018. On an adjusted basis, in the second quarter of 2019, net income was $470 million, or $1.11 per diluted share. On an adjusted basis, in the second quarter of 2018, net income was $438 million, or $1.01 per diluted share.
  • The company’s adjusted second quarter of 2019 results exclude a 15-cent-per-diluted-share loss on the early extinguishment of debt, 4 cents per diluted share of noncash charges to write-off certain assets and 3 cents per diluted share related to the planned acquisition of Advanced Disposal Services Inc. (ADS). The company’s adjusted second quarter of 2018 results exclude a 7 cents per diluted share tax benefit related to income tax audit settlements and a net 7 cents per diluted share benefit primarily related to the gain on divestiture of an ancillary business.
  • As a percentage of revenue, operating expenses were 61.9 percent in the second quarter of both 2019 and 2018. On an adjusted basis, operating expenses were 61.5 percent for the second quarter of 2019.
  • Volumes were up 4 percent.
  • Cash from operations was up $1.01 billion, a 3.6 increase.
  • Landfill municipal solid waste yield was up 3.6 percent.

Fish on the company’s financial performance

“Once again, our employees delivered strong operating performance in the second quarter, continuing to demonstrate our strategic focus on leveraging our asset network to serve our customers and drive growth. Just like in the first quarter. The strength of our collection and disposal business was the main contributor to our success.

“In the second quarter, we generated more than 7 percent organic revenue growth in our collection and disposal business with yield of 2.7 percent and volume of 4.4 percent, and we had strong core price of 5.4 percent, which translated into total company operating EBITDA (earnings before interest, taxes, depreciation and amortization) of more than $1.13 billion, an increase of almost 7 percent from the second quarter of 2018. We also saw operating EBITDA margin expand 30 basis points for the total company and 60 basis points for the collection and disposal business. As we've said many times, operating EBITDA is the best measure of the health and performance of our business, and in the second quarter, all indicators point to excellent health.”

On the status of the ADS acquisition:

“I'd like to provide an update on the progress we're making towards the ADS acquisition. At the end of June, the ADS stockholders voted overwhelmingly to approve Waste Management's acquisition of the company. This stockholder approval is an important milestone in the process towards closing the transaction.

“In addition, and as expected, we received a second request from the Department of Justice. And we continue to work with them to satisfy this request. We remain on track to complete the acquisition during the first quarter of 2020. We will keep you informed as we continue our progress towards closing this transaction. We have a dedicated team working to position [us] to successfully integrate ADS upon close. These efforts are important, and we're pleased with the progress we're making on that front.”

On the company’s investments in its people and technology:

“Our team is also focused on a number of additional efforts to accelerate our growth and continuously improve our business. We continue to invest in our people, technology, our customer experience and our asset network. On the people side, we opened our second driver and technician training facility in Glendale, Arizona, in June.

“And we continue to expand our program with Caterpillar to remotely operate equipment at one of our landfills in Denver. While this is a technology investment, it's also an investment in our people as technology like this modernizes the jobs for our workers, improves safety, enable us to more efficiently work and provides us with an opportunity to expand our workforce in the future.

“On both the technology and customer experience fronts, in June, we launched an upgraded [website] that allows customers to order and manage service with modernized navigation and increased functionality. We redesigned the site with input from our customers, and so far, it's been really well-received. In the first month, we had a 20 percent increase in customers shopping on the website and an 11 percent increase in overall online sales revenue. E-commerce is a small but growing channel for us, and we're in the early innings of maximizing its value. Another benefit we get from e-commerce is improving customer loyalty because most online customers enroll in convenient billing and payment options.”

On Waste Management’s landfill focus:

“On the asset network front, we're seeing great results from our increased focus on enhancing our postcollection business model. Our team is securing expansion airspace capacity in key markets, partnering with communities to ensure that they understand the role that landfills can play in achieving their waste management goals, and optimizing our pricing methods to improve profitability and return. In the second quarter, core price in the landfill line of business was 4 percent and MSW (municipal solid waste) yield was 3.6 percent, which exceeded 3 percent for the second consecutive quarter. This is the highest MSW yield in a decade. It's important for us to drive discipline in landfill pricing to ensure that we earn appropriate returns on this capital-intensive part of our business.

“Our efforts to drive greater discipline in the pricing of our post-collection businesses starts with the transfer station, which is often referred to as a remote gate to the landfill. This focus is also showing strong results with our second quarter transfer station yield improving to 3.4 percent, an increase of 70 basis points sequentially and 160 basis points from the prior-year period. We will continue to focus on maximizing our asset utilization to generate strong returns on all of our assets. We've had a great start to 2019.”

On what results he expects from the rest of the year:

“In the second half of 2019, we expect that our collection and disposal business will continue to generate strong earnings growth and more than offset the decline we now expect in our recycling line of business. … Suffice to say, we're confident in our ability to execute our strategy, and we are reaffirming our full-year 2019 guidance of adjusted earnings per diluted share of between $4.28 and $4.38, adjusted operating EBITDA of between $4.4 billion and $4.45 billion, and free cash flow of between $2.025 billion and $2.075 billion.”