01—Abstract
Summary
Summary of the 10-Q filed October 27, 2011. Cited figures are marked; the original filing is the authoritative source.
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%a 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 millionb in Q3 2010.
Diluted EPS also increased to $0.58c 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.
02—Key points
Key Highlights
- Total 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.
- Net 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.
- Operational 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.
- Operating 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.
- The 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.
- Free 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.
- The 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.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2011, Waste Management Inc kept $0.08.
- Revenue$3.52B100.0%
- Cost of revenue−$2.26B64.2%
- Gross profit$1.26B35.8%
- Operating costs−$718.0M20.4%
- Operating income$543.0M15.4%
- Interest, other & tax−$271.0M7.7%
- Net income$272.0M7.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2011filed October 27, 2011Financial Statements
Q3 FY2011 against Q3 FY2010
| Line item | Q3 FY2011Q3 FY2010 | Change |
|---|---|---|
| Revenue | $3.52B$3.23B | +8.9% |
| Cost of Revenue | $2.26B— | — |
| Gross Profit | $1.26B— | — |
| SG&A Expenses | $380.00M$369.00M | +3.0% |
| Operating Expenses | $2.98B$2.69B | +10.7% |
| Operating Income | $543.00M$544.00M | −0.2% |
| Net Income | $272.00M$244.00M | +11.5% |
| EPS (Basic) | $0.58$0.51 | +13.7% |
| EPS (Diluted) | $0.58$0.51 | +13.7% |
| Shares Outstanding (Basic) | 468.30M477.30M | −1.9% |
| Shares Outstanding (Diluted) | 469.70M481.00M | −2.3% |
05—Questions
Frequently Asked Questions
What was the primary driver of revenue growth in the third quarter of 2011?
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.
How did the acquisition of Oakleaf Global Holdings impact the company's financial performance?
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.
What is the company's outlook on operational volumes and yield for the remainder of the year?
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.
How did the company manage its operating expenses, and what were the main drivers of the increase?
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.
06—Continue