10-QPeriod: Q3 FY2011

WASTE MANAGEMENT INC Quarterly Report for Q3 Ended Sep 30, 2011

Filed October 27, 2011For Securities:WM

Summary

Waste Management, Inc. (WM) reported strong top-line growth in the third quarter and first nine months of 2011, with revenues increasing by 8.9% and 6.9%, respectively, driven by higher commodity prices, fuel surcharges, and the strategic acquisition of Oakleaf Global Holdings. Despite a continued decline in operational volumes (-2.0% for the quarter), the company managed to improve its overall revenue yield and benefited from positive commodity market trends in its recycling business. While operating expenses saw a significant increase, largely due to higher recycling commodity rebates, fuel costs, and integration of acquired businesses, the company's net income attributable to Waste Management, Inc. showed improvement, reaching $272 million in Q3 2011 compared to $244 million in Q3 2010. Diluted EPS also increased to $0.58 from $0.51. The company also demonstrated solid free cash flow generation, although it decreased compared to the prior year, and maintained a disciplined approach to capital allocation, including share repurchases and dividend payments.

Financial Highlights

52 data points
Beta

Revenue

$3.52B

35.8% Gross Margin

Net Income

$272.00M

7.7% Net Margin

EPS (Diluted)

$0.58

Total Assets

$22.05B

Cash & Equivalents

$282.00M

Free Cash Flow

$659.00M

Financial Statements
Beta
Revenue$3.52B
Cost of Revenue$2.26B
Gross Profit$1.26B
SG&A Expenses$380.00M
Operating Expenses$2.98B
Operating Income$543.00M
Net Income$272.00M
EPS (Basic)$0.58
EPS (Diluted)$0.58
Shares Outstanding (Basic)468.30M
Shares Outstanding (Diluted)469.70M

Key Highlights

  • 1Total revenues increased by 8.9% to $3.52 billion in Q3 2011 compared to $3.24 billion in Q3 2010, driven by higher recycling commodity prices and the acquisition of Oakleaf Global Holdings.
  • 2Net income attributable to Waste Management, Inc. rose to $272 million ($0.58 per diluted share) in Q3 2011 from $244 million ($0.51 per diluted share) in Q3 2010.
  • 3Operational volumes continued to decline, with a 2.0% decrease in revenue due to volume for Q3 2011, partially offset by a 1.6% increase in average yield on collection and disposal operations.
  • 4Operating expenses increased by 12.7% to $2.26 billion in Q3 2011, largely due to higher recycling commodity rebates, fuel costs, and integration of acquired businesses.
  • 5The company completed the strategic acquisition of Oakleaf Global Holdings for $432 million, which contributed $112 million in revenue and $150 million to overall revenue growth in Q3 2011.
  • 6Free cash flow for the nine months ended September 30, 2011 was $867 million, a decrease from $952 million in the prior year, primarily due to higher capital expenditures and acquisitions.
  • 7The company's effective income tax rate decreased to 32.3% in Q3 2011 from 37.3% in Q3 2010, benefiting from tax credits and audit settlements.

Frequently Asked Questions

Revenue growth in the third quarter of 2011 was primarily driven by three factors: market factors such as higher recycling commodity prices and fuel surcharges, revenue growth from average yield in collection and disposal operations, and acquisitions, most notably the strategic acquisition of Oakleaf Global Holdings.

The acquisition of Oakleaf Global Holdings for $432 million contributed $112 million in revenue during the period it was owned in Q3 2011 and was a significant driver of overall revenue growth, adding $150 million to consolidated revenues for the quarter. The integration of Oakleaf also led to an increase in operating expenses and selling, general, and administrative expenses.

For the full year 2011, Waste Management expects its revenue growth from yield to be approximately 2.0%. They also anticipate revenue growth from volumes to be in the range of negative 1.5% to negative 2.5%, indicating a continued focus on managing costs and improving pricing in the face of declining volumes.

Operating expenses increased by 12.7% in Q3 2011. Key drivers included higher customer rebates due to increased recycling commodity prices, costs associated with acquisitions, higher fuel prices, and increased employee severance and benefit costs related to restructuring initiatives. Despite the increase in expenses, the company managed to offset some of these with cost savings achieved through volume declines and efficiency programs.