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Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended September 30, 2013. Revenues for the third quarter of 2013 were $3.62 billion compared with $3.46 billion for the same 2012 period. Net income
(a) for the quarter was $291 million, or $0.62 per diluted share, compared with $214 million, or $0.46 per diluted share, for the third quarter of 2012, more than a 30% increase. Income from operations grew $77 million and income from operations margin grew 150 basis points. Results in the third quarter of 2013 included approximately $15 million of after-tax costs, primarily from asset impairments. Excluding these items, net income would have been $306 million, or $0.65 per diluted share, compared to adjusted earnings per diluted share of $0.61 in the third quarter of 2012.
David P. Steiner, President and Chief Executive Officer of Waste Management, commented, “We had a very strong third quarter, earning $0.65 per share, as adjusted. Despite continued headwinds confronting our recycling and waste-to-energy businesses, our overall as-adjusted income from operations grew $33 million and the overall income from operations margin grew 20 basis points.
(b) The results were even more impressive in our traditional solid waste business, where income from operations grew $71 million and our income from operations margin grew 120 basis points.
“These strong results were driven by our continued focus on increasing internal revenue growth from yield and controlling costs. In the third quarter, collection and disposal yield was 2.3%, the fifth quarter of sequential improvement, and nearly triple the yield we saw in the third quarter of 2012. SG&A expenses as a percentage of revenue improved to 9.6% in the quarter, despite a year-over-year negative change of $50 million related to accruals for our annual incentive program.
“Our net cash provided by operating activities increased by $162 million, almost 30%, to $736 million in the third quarter from the prior year period, and through the first nine months of 2013 was $1.9 billion. We maintained our discipline on capital spending, spending $323 million in the quarter. That, coupled with the strength in operating cash, resulted in the best quarterly free cash flow that we have seen since the third quarter of 2008. During the third quarter, our free cash flow grew by $272 million compared to the prior year period, to a total of $452 million. Through the first nine months, free cash flow was $1.15 billion, or $1.03 billion excluding divestitures. We are now raising our free cash flow target for the full year by $100 million to between $1.2 and $1.3 billion, excluding divestitures.”
(b)KEY HIGHLIGHTS FOR THE THIRD QUARTER 2013
Revenue increased by 4.6%, or $160 million, from the prior year period, primarily from acquisitions and internal revenue growth from yield.
Internal revenue growth from yield for collection and disposal operations was 2.3%, compared to 0.8% in the third quarter of 2012.
Core price, which consists of price increases and fees, other than the Company’s fuel surcharge, net of rollbacks, was 3.9%, compared with 2.3% in the third quarter of 2012.
Internal revenue growth from volume was negative 0.6%. On a workday-adjusted basis, internal revenue growth from volume was negative 1.3%.
Recycling operations negatively affected earnings by $0.02 per diluted share in the third quarter when compared to the third quarter of 2012. The Company now expects a full-year negative impact of $0.13 per diluted share versus a negative $0.08 per diluted share as anticipated at the end of the second quarter and negative $0.02 per diluted share as anticipated at the beginning of the year. For the fourth quarter of 2013, we anticipate a negative impact of $0.03 per diluted share when compared to 2012.
Operating expenses increased by $96 million from the prior year period. The majority of the increase relates to the acquired operations of Greenstar and RCI, increased recycling costs, and the timing of repair and maintenance costs at the Company’s waste-to-energy facilities.
SG&A expenses improved to 9.6% of revenue. Despite a net $50 million year-over-year increase in incentive compensation, SG&A expenses only increased by $14 million compared with the third quarter of 2012. The $50 million change was driven by a combination of an accrual reversal in the third quarter of 2012 and an accrual in the third quarter of the current year.
Net cash provided by operating activities was $736 million, an increase of $162 million from the prior year period; capital expenditures were $323 million; free cash flow was $452 million; and net proceeds from divestitures were $39 million. (b)
The Company still expects to spend between $1.3 billion and $1.4 billion on capital expenditures during the year.
The Company returned $171 million to shareholders in the form of dividends.
The effective tax rate was approximately 34.3%.
Steiner concluded, “In the third quarter we maintained our disciplined approach to improving yield, reducing costs, and managing working capital and capital expenditures, which is reflected in our earnings growth and in the improvement in net cash provided by operating activities and free cash flow. As a result, we are on track to achieve our full-year goals, despite an estimated $0.13 per share of full-year headwinds from our recycling operations, which is $0.11 more than anticipated at the beginning of the year. This performance is a tribute to our field and corporate leaders, who overcame a number of headwinds with strong yield and cost control execution. Their efforts have made us confident that we can meet our adjusted diluted earnings per share guidance range of between $2.15 and $2.20 for the full year, and we now believe we will generate free cash flow between $1.2 and $1.3 billion, excluding proceeds from divestitures.”