Earnings
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WM sees strong growth in Q3

Operating EBITDA in the company’s collection and disposal business increased by about $174 million during the third quarter.

October 27, 2022

WM, headquartered in Houston, has released its financial results for the third quarter ended Sept. 30. The report shows strong organic revenue growth, and operating efficiencies drove double-digit growth in operational income and diluted earnings per share.

“As we have seen all year, our team delivered strong results in the third quarter, driven by the strength and resiliency of our collection and disposal business,” says Jim Fish, WM president and CEO. “Organic revenue growth, diligent management of controllable costs and proactive steps to automate the business translated into an 11 percent increase in adjusted operating EBITDA [earnings before interest, taxation, depreciation and amortization].”

Core price for the third quarter of 2022 was 8.2 percent compared with 4.6 percent in the third quarter of 2021. Collection and disposal yield was 7.1 percent in the third quarter of 2022 compared with 3.6 percent in the third quarter of 2021.

Total company volumes increased 1 percent, or 1.3 percent on a workday-adjusted basis, in the third quarter of 2022, and collection and disposal volumes increased 1.4 percent, or 1.7 percent on a workday-adjusted basis. Total company volumes improved 3.2 percent in the third quarter of 2021, or 3 percent on a workday-adjusted basis, and collection and disposal volumes increased 3.4 percent, or 3.2 percent on a workday-adjusted basis, in the third quarter of 2021.

“While there were increased costs from business disruption and property losses in the quarter related to the hurricane, we are well-positioned to handle storm volume as cleanup activity ramped up in [the] fourth quarter,” said Jim Morris, chief operating officer of WM, during an earnings conference call Oct. 26. “We remain focused on controlling operating costs. Adjusted operating expenses were 62.2 percent of revenue in the third quarter, in line with the prior year.”

Operating expenses as a percentage of revenue were 62.2 percent in the third quarter of 2022 compared with 62.3 percent in the third quarter of 2021. The measure improved 70 basis points in the collection and disposal business as pricing and operating efficiencies worked to overcome inflationary cost pressures, WM says. This improvement largely was offset by the impacts of a sharp decline in market prices for recycled commodities.

Selling, general and administrative (SG&A) expenses were 9.3 percent of revenue in the third quarter of 2022 compared with 10.1 percent in the third quarter of 2021. On an adjusted basis, SG&A expenses were 9.2 percent of revenue in the third quarter of 2022 compared to 9.7 percent in the third quarter of 2021. 

During 2022, WM says it made significant investments in its workforce, including proactive wage adjustments, an improved benefits package and increased training. Morris said the investments are paying off as driver turnover improved 410 basis points in the past three months, and sequentially, the rate of increase in labor costs improved more than 400 basis points.

Operating EBITDA in the company’s collection and disposal business, adjusted on the same basis as total company operating EBITDA, increased by about $174 million to $1.59 billion for the third quarter of 2022. Operating EBITDA as a percentage of revenue in the company’s collection and disposal business was 31.8 percent for the third quarter of 2022 compared with 31.2 percent for the third quarter of 2021.

“Operating EBITDA margins also benefited 50 basis points from the passage of the Inflation Reduction Act, which secured alternative fuel tax credits through 2024,” WM Chief Financial Officer Devina Rankin said during the conference call.

Operating EBITDA in the company’s recycling line of business decreased by $36 million compared with the third quarter of 2021, which WM says was driven primarily by a 32 percent decline in recycled commodity prices and persistent inflationary cost pressures on operating costs.

Operating EBITDA in the company’s renewable energy business was relatively flat compared with the third quarter of 2021. Results were generally in line with expectations as the company sold about 30 percent of its renewable natural gas (RNG) under long-term contracts, which moderated the average price per million British thermal units (MMBtu).

“Our solid operational performance in the first nine months of the year positions us to achieve the guidance we provided last quarter,” Rankin said. “We continue to expect revenue growth of approximately 10 percent and adjusted operating EBITDA within the range of $5.5 billion to $5.6 billion, which represents an operating EBITDA margin of 28.1 percent at the midpoint.”

In the third quarter of 2022, net cash provided by operating activities was $1.18 billion, in line with the third quarter of 2021. Capital expenditures to support the business were $547 million compared with $448 million in the third quarter of 2021. In addition, capital expenditures for sustainability growth investments were $210 million compared with $16 million in the third quarter of 2021.

In the third quarter of 2022, free cash flow was $432 million compared with $773 million in the third quarter of 2021. Free cash flow without sustainability growth investments was $642 million compared with $789 million in the third quarter of 2021. The year-over-year decline in free cash flow primarily was driven by the planned increase in sustainability growth investments and accelerated capital spending to support the business, according to the company.

During the third quarter of 2022, $808 million was returned to shareholders, including $541 million allocated to share repurchases and $267 million of cash dividends.

“WM continues to demonstrate the strength and reliability of our business model,” Fish says. “Our operational performance puts us on track to achieve the higher full-year outlook we provided last quarter as the solid waste business delivers strong results that will work to overcome the headwind we now expect from lower market prices for recycled commodities.”