Waste Management Announces Second Quarter Earnings

Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended June 30, 2013. Revenues for the second quarter of 2013 were $3.53 billion compared with $3.46 billion for the same 2012 period. Net income (a) for the quarter was $244 million, or $0.52 per diluted share, compared with $208 million, or $0.45 per diluted share, for the second quarter of 2012, a 15.6% increase. Results in the second quarter of 2013 included approximately $8 million of after-tax charges primarily from an asset impairment. Excluding these costs, net income would have been $252 million, or $0.54 per diluted share, compared to adjusted earnings per diluted share of $0.52 in 2012. (b)

David P. Steiner, President and Chief Executive Officer of Waste Management, commented, “In the second quarter, our earnings per share grew to $0.54 in spite of the negative impact of $0.03 of unexpected headwinds. We had $0.02 more headwind from our recycling operations than we expected and a negative $0.01 from litigation settlements. Without these headwinds, we would have earned $0.57 per share. Income from operations in our traditional solid waste business grew $47 million and the related income from operations margin grew 80 basis points. These strong results were driven by collection and disposal yield of 2.1% for the second quarter. We also achieved SG&A cost savings of $21 million, despite nearly $30 million of incremental incentive compensation accruals.

“The strong yield and cost savings translated into net cash provided by operating activities of $545 million and increased free cash flow to $347 million in the second quarter. Through the first six months, net cash provided by operating activities and free cash flow totaled $1.1 billion and $695 million, respectively. When we exclude the impact of asset sales, we are well on our way to achieving our goal of generating between $1.1 and $1.2 billion of free cash flow.” (b)

KEY HIGHLIGHTS FOR THE SECOND QUARTER 2013
  • Revenue increased by 1.9%, or $67 million.
  • Internal revenue growth from yield for collection and disposal operations was 2.1%. The Company’s fuel surcharge added 0.4% to total revenue. Year to date yield is 1.7%.
  • Core price, which consists of price increases and fees, other than the Company’s fuel surcharge, net of rollbacks, was 3.6%, compared with 2.5% in the second quarter of 2012. Rollbacks were reduced by over 45% from the second quarter of 2012, without a material increase in the Company’s churn rate.
  • Internal revenue growth from volume was negative 0.6%, down from the first quarter 2013 work-day adjusted volume improvement of 0.8%, primarily driven by a negative swing in recycling volumes.
  • Average recycling commodity prices were approximately 12.5% lower in the second quarter of 2013 compared with the prior year period. In total, recycling operations negatively affected earnings by $0.05 per diluted share in the second quarter when compared to the prior year period, versus previous expectations of negative $0.03, which created the additional $0.02 headwind referenced above. The Company now expects a full-year negative impact of $0.08 per share from its recycling operations compared to 2012. Originally, the Company expected a negative impact of $0.02 per share for 2013.
  • Operating expenses increased by $51 million. The majority of the increase relates to higher operating costs from acquired operations, increased costs in the Company’s recycling operations stemming from China’s restrictions on non-conforming materials in imported recycling commodities, and the timing of maintenance costs at its waste-to-energy facilities.
  • SG&A expenses improved by $21 million compared with the second quarter of 2012 and improved to 10.0% of revenue from 10.8% in the prior year period.
  • Net cash provided by operating activities was $545 million; capital expenditures were $235 million; and free cash flow was $347 million. (b)
  • The Company returned $171 million to shareholders in the form of dividends.
  • The effective tax rate was approximately 33.2%.

Steiner concluded, “We are pleased with our results for the second quarter and year to date, which are on plan, despite the greater than expected negative impact from our recycling business. Our disciplined approach to improving price, reducing costs, and managing capital expenditures is reflected in the earnings growth of our traditional solid waste business and in the improvement in free cash flow. We have built good momentum towards our full-year outlook. Despite much higher headwinds than we expected from our recycling operations, we still expect to achieve adjusted diluted earnings per share within our full-year earnings guidance range of between $2.15 and $2.20 per share. We also expect to meet our free cash flow target of at least $1.1 to $1.2 billion.” (b)

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(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) This earnings release contains a discussion of non-GAAP 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 our results of operations and (ii) financial measures the Company uses in the management of its business. Accordingly, net income and earnings per diluted share have been presented in certain instances excluding special items noted in this press release.

The Company’s projected full year 2013 earnings per diluted share are not based on GAAP net earnings per diluted share and are anticipated to be adjusted to exclude the effects of events or circumstances in 2013 that are not representative or indicative of the Company’s results of operations. Projected GAAP earnings per diluted share for the full year would require inclusion of the projected impact of future excluded items, including items that 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 to a GAAP earnings per diluted share projection.

The Company also discusses free cash flow and provides a projection of free cash flow, which is a non-GAAP measure, because it believes that it is indicative of our ability to pay our quarterly dividends, repurchase common stock, fund acquisitions and other investments and, in the absence of refinancings, to repay our debt obligations. Free cash flow is not intended to replace “Net cash provided by operating activities,” which is the most comparable U.S. GAAP measure. However, the Company believes free cash flow gives investors useful insight into how the Company views its liquidity. Nevertheless, 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 (net of cash divested), and other sales of assets.

The Company's definition of free cash flow may not be comparable to similarly titled measures presented by other companies, and therefore is not subject to comparison.

The quantitative reconciliations of non-GAAP measures used herein, other than projected earnings per diluted share, to the most comparable GAAP measures are included in the accompanying schedules. Non-GAAP measures should not be considered a substitute for financial measures presented in accordance with GAAP, and investors are urged to take into account GAAP measures as well as non-GAAP measures in evaluating the Company.

The Company will host a conference call at 10:00 AM (Eastern) today to discuss the second quarter 2013 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 97883740 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) Tuesday, July 30, 2013 through 5:00 PM (Eastern) on Friday, August 13, 2013. 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 97883740.

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, 2013 earnings per diluted share; 2013 free cash flow; future SG&A cost savings; results from pricing, capital management and cost control and reduction initiatives; future recycling commodity prices; and results from recycling operations. 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; environmental and other regulations; commodity price fluctuations; 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.

ABOUT WASTE MANAGEMENT

Waste Management, Inc., 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, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and 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.
 
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
                 
 
Quarters Ended June 30,
2013 2012
 
Operating revenues $ 3,526 $ 3,459
 
Costs and expenses:
Operating 2,311 2,260
Selling, general and administrative 353 374
Depreciation and amortization 339 323
Restructuring 2 3
(Income) expense from divestitures, asset impairments and unusual items   11     33  
  3,016     2,993  
Income from operations   510     466  
 
Other income (expense):
Interest expense (122 ) (121 )
Interest income 1 1
Equity in net losses of unconsolidated entities (8 ) (11 )
Other, net   2     (1 )
  (127 )   (132 )
 
Income before income taxes 383 334
Provision for income taxes   127     115  
Consolidated net income 256 219
Less: Net income attributable to noncontrolling interests   12     11  
Net income attributable to Waste Management, Inc. $ 244   $ 208  
 
Basic earnings per common share $ 0.52   $ 0.45  
 
Diluted earnings per common share $ 0.52   $ 0.45  
 
Basic common shares outstanding   467.9     463.4  
 
Diluted common shares outstanding   469.4     464.0  
 
Cash dividends declared per common share $ 0.365   $ 0.355  
 
 
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
                 
 
Quarters Ended June 30,
2013 2012
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 244   $ 208
 
 
 
Number of common shares outstanding at end of period 468.1 463.0
Effect of using weighted average common shares outstanding   (0.2 )   0.4
Weighted average basic common shares outstanding 467.9 463.4
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   1.5     0.6
Weighted average diluted common shares outstanding   469.4     464.0
 
 
 
Basic earnings per common share $ 0.52   $ 0.45
 
Diluted earnings per common share $ 0.52   $ 0.45
 
 
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
                 
 
Six Months Ended June 30,
2013 2012
 
Operating revenues $ 6,862 $ 6,754
 
Costs and expenses:
Operating 4,520 4,426
Selling, general and administrative 743 781
Depreciation and amortization 662 640
Restructuring 10 7
(Income) expense from divestitures, asset impairments and unusual items   15     33  
  5,950     5,887  
Income from operations   912     867  
 
Other income (expense):
Interest expense (244 ) (243 )
Interest income 2 2
Equity in net losses of unconsolidated entities (16 ) (18 )
Other, net   (9 )   (2 )
  (267 )   (261 )
 
Income before income taxes 645 606
Provision for income taxes   213     204  
Consolidated net income 432 402
Less: Net income attributable to noncontrolling interests   20     23  
Net income attributable to Waste Management, Inc. $ 412   $ 379  
 
Basic earnings per common share $ 0.88   $ 0.82  
 
Diluted earnings per common share $ 0.88   $ 0.82  
 
Basic common shares outstanding   466.8     462.9  
 
Diluted common shares outstanding   468.1     463.7  
 
Cash dividends declared per common share $ 0.73   $ 0.71  
 
 
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
                 
 
Six Months Ended June 30,
2013 2012
 
EPS Calculation:
 
Net income attributable to Waste Management, Inc. $ 412   $ 379  
 
 
 
Number of common shares outstanding at end of period 468.1 463.0
Effect of using weighted average common shares outstanding   (1.3 )   (0.1 )
Weighted average basic common shares outstanding 466.8 462.9
Dilutive effect of equity-based compensation awards and
other contingently issuable shares   1.3     0.8  
Weighted average diluted common shares outstanding   468.1     463.7  
 
 
 
Basic earnings per common share $ 0.88   $ 0.82  
 
Diluted earnings per common share $ 0.88   $ 0.82  
 
 

Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
                 
 
 
June 30, December 31,
2013 2012
(Unaudited)
Assets
 
Current assets:
Cash and cash equivalents $ 154 $ 194
Receivables, net 1,853 1,839
Other   397   390
Total current assets 2,404 2,423
 
Property and equipment, net 12,469 12,651
Goodwill 6,391 6,291
Other intangible assets, net 411 397
Other assets   1,337   1,335
Total assets $ 23,012 $ 23,097
 
 
Liabilities and Equity
 
Current liabilities:
Accounts payable, accrued liabilities, and
deferred revenues $ 2,246 $ 2,293
Current portion of long-term debt   776   743
Total current liabilities 3,022 3,036
 
Long-term debt, less current portion 8,994 9,173
Other liabilities   4,178   4,213
Total liabilities   16,194   16,422
 
Equity:
Waste Management, Inc. stockholders' equity 6,509 6,354
Noncontrolling interests   309   321
Total equity   6,818   6,675
Total liabilities and equity $ 23,012 $ 23,097
 
 
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
                 
 
Six Months Ended June 30,
2013 2012
 
Cash flows from operating activities:
Consolidated net income $ 432 $ 402
Adjustments to reconcile consolidated net income to net cash
provided by operating activities:
Depreciation and amortization 662 640
Other 91 126
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures   (63 )   (24 )
Net cash provided by operating activities   1,122     1,144  
 
Cash flows from investing activities:
Acquisitions of businesses, net of cash acquired (210 ) (154 )
Capital expenditures (501 ) (730 )
Proceeds from divestitures of businesses (net of cash
divested) and other sales of assets 74 20
Investments in unconsolidated entities (24 ) (40 )
Net receipts from restricted trust and escrow
accounts, and other   (32 )   1  
Net cash used in investing activities   (693 )   (903 )
 
Cash flows from financing activities:
New borrowings 71 312
Debt repayments (268 ) (271 )
Cash dividends (341 ) (329 )
Exercise of common stock options 98 31
Other, net   (25 )   (5 )
Net cash used in financing activities   (465 )   (262 )
 
Effect of exchange rate changes on cash and cash equivalents   (4 )   -  
 
Increase (decrease) in cash and cash equivalents (40 ) (21 )
Cash and cash equivalents at beginning of period   194     258  
Cash and cash equivalents at end of period $ 154   $ 237  
 
 
Waste Management, Inc. Summary Data Sheet (Dollar Amounts in Millions) (Unaudited)
                 
Quarters Ended
June 30, March 31, June 30,
2013 2013 2012

Operating Revenues by Lines of Business
 
Collection
Commercial $ 855 $ 840 $ 855
Residential 652 645 650
Industrial 558 512 536
Other   68     58     66  
Total Collection 2,133 2,055 2,107
Landfill 716 628 676
Transfer 345 300 331
Wheelabrator 215 205 206
Recycling 366 358 369
Other 397 378 363
Intercompany (a)   (646 )   (588 )   (593 )
Operating revenues $ 3,526   $ 3,336   $ 3,459  
 
Quarters Ended
June 30, 2013 June 30, 2012
 

Analysis of Change in Year Over Year Revenues
Amount

As a % ofTotal Company
Amount

As a % ofTotal Company
Average yield (i) $ 33 1.0 % $ (96 ) -2.9 %
Volume   (20 )   -0.6 %   19     0.6 %
Internal revenue growth 13 0.4 % (77 ) -2.3 %
Acquisition 57 1.6 % 199 5.9 %
Divestitures (1 ) 0.0 % (1 ) 0.0 %
Foreign currency translation   (2 )   -0.1 %   (9 )   -0.3 %
$ 67     1.9 % $ 112     3.3 %
 
Amount

As a % ofRelatedBusiness
Amount

As a % ofRelatedBusiness

(i) Average yield
Collection, landfill and transfer $ 60 2.2 % $ 25 1.0 %
Waste-to-energy disposal   -   -   (9 ) -7.4 %
Collection and disposal 60 2.1 % 16 0.6 %
Recycling commodities (45 ) -12.2 % (95 ) -22.6 %
Electricity 4 6.6 % (8 ) -11.6 %
Fuel surcharges and mandated fees   14   8.9 %   (9 ) -5.4 %
Total $ 33   1.0 % $ (96 ) -2.9 %
 
Quarters Ended June 30, Six Months Ended June 30,
2013 2012 2013 2012

Free Cash Flow Analysis (b)
 
Net cash provided by operating activities $ 545 $ 669 $ 1,122 $ 1,144
Capital expenditures (235 ) (351 ) (501 ) (730 )
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets   37     14     74     20  
Free cash flow $ 347   $ 332   $ 695   $ 434  
 
(a)

Intercompany revenues between lines of business are eliminated within the Condensed Consolidated Financial Statements included herein.
 
(b)

The summary of free cash flows has been prepared to highlight and facilitate understanding of the principal cash flow elements. Free cash flow is not a measure of financial performance under generally accepted accounting principles and is not intended to replace the consolidated statement of cash flows that was prepared in accordance with generally accepted accounting principles.
 
Waste Management, Inc. Summary Data Sheet (Dollar Amounts in Millions) (Unaudited)
             
Quarters Ended
June 30, March 31, June 30,
2013 2013 2012

Balance Sheet Data
 
Cash and cash equivalents $ 154   $ 307   $ 237  
 
Debt-to-total capital ratio:
Long-term indebtedness, including current
portion $ 9,770 $ 10,009 $ 9,826
Total equity   6,818     6,716     6,487  
Total capital $ 16,588   $ 16,725   $ 16,313  
 
Debt-to-total capital   58.9 %   59.8 %   60.2 %
 
Capitalized interest $ 4   $ 5   $ 5  
 

Acquisition Summary (a)
 
Gross annualized revenue acquired $ 47   $ 226   $ 13  
 
Total consideration $ 32   $ 217   $ 18  
 
Cash paid for acquisitions $ 30   $ 180   $ 25  
 

Other Operational Data
 
Internalization of waste, based on disposal costs   66.6 %   67.2 %   67.3 %
 
Total landfill disposal volumes (tons in millions) 24.1 21.1 23.2
Total waste-to-energy disposal volumes (tons in millions)   2.0     1.9     2.0  
Total disposal volumes (tons in millions)   26.1     23.0     25.2  
 
Active landfills   270     269     270  
 
Landfills reporting volume   256     253     258  
 
 

Amortization, Accretion and Other Expenses for

Landfills Included in Operating Groups:
Landfill amortization expense -
Cost basis of landfill assets $ 88.1 $ 80.9 $ 83.1
Asset retirement costs   17.9     14.6     13.2  
Total landfill amortization expense (b)(c) 106.0 95.5 96.3
Accretion and other related expense   17.1     19.6     16.8  
Landfill amortization, accretion and other related expense $ 123.1   $ 115.1   $ 113.1  
 
(a)

Represents amounts associated with business acquisitions consummated during the indicated periods. Note that cash paid for acquisitions may include cash payments for business acquisitions consummated in prior quarters.
 
(b)

The quarter ended June 30, 2013 as compared to the quarter ended March 31, 2013 reflects an increase in amortization expense of approximately $10.5 million due to increases in landfill volumes and partially offset by changes in landfill estimates identified in both quarters.
 
(c)

The quarter ended June 30, 2013 as compared to the quarter ended June 30, 2012 reflects an increase in amortization expense of approximately $9.7 million driven by an increase in landfill volumes and changes in landfill estimates identified in both quarters.
           
Waste Management, Inc. Reconciliation of Certain Non-GAAP Measures (Dollars In Millions, Except Per Share Amounts) (Unaudited)
 
Quarter Ended

June 30, 2013
Adjusted Net Income and Earnings Per Diluted Share

After-tax Amount

Tax (Expense) / Benefit

Per Share Amount
Net Income and Diluted EPS, as reported $ 244 $ 0.52
 
Adjustments to Net Income and Diluted EPS:
Asset impairments, net of divestitures 7 4
Restructuring charges   1   1  
  8     0.02
Net Income and Diluted EPS, as adjusted $ 252   $ 0.54
 
 
Quarter Ended

June 30, 2012
Adjusted Net Income and Earnings Per Diluted Share

After-tax Amount

Tax (Expense) / Benefit

Per Share Amount
Net Income and Diluted EPS, as reported $ 208 $ 0.45
 
Adjustments to Net Income and Diluted EPS:
Charges primarily related to asset impairments and restructuring charges 26 15
Partial withdrawal from multiemployer pension plan   6   4  
  32     0.07
Net Income and Diluted EPS, as adjusted $ 240   $ 0.52
 
 
 
Full Year 2013 Free Cash Flow Reconciliation (a) Scenario 1 Scenario 2
 
Net cash provided by operating activities $ 2,500 $ 2,500
Capital expenditures (1,400 ) (1,300 )
Proceeds from divestitures of businesses (net of
cash divested) and other sales of assets   -     -  
$ 1,100   $ 1,200  
 
(a) The reconciliation illustrates two scenarios that show our projected free cash flow for 2013. The amounts used in the reconciliation are subject to many variables, some of which are not under our control and, therefore, are not necessarily indicative of actual results.

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