10-QPeriod: Q3 FY2012

WASTE MANAGEMENT INC Quarterly Report for Q3 Ended Sep 30, 2012

Filed October 31, 2012For Securities:WM

Summary

Waste Management Inc. (WM) reported revenues of $3.46 billion for the third quarter of 2012, a slight decrease of 1.7% year-over-year, primarily due to declining recyclable commodity prices and lower waste-to-energy business revenues. Net income attributable to Waste Management, Inc. was $214 million, or $0.46 per diluted share, down from $272 million, or $0.58 per diluted share, in the prior year's third quarter. The decline in profitability was influenced by restructuring charges, impairment charges related to investments, and labor disputes. Despite these pressures, the company's operational efficiency initiatives and acquisition of Oakleaf are noted. Free cash flow for the nine months ended September 30, 2012, was $614 million, demonstrating continued liquidity. Looking at the nine-month period, revenues increased by 2.4% to $10.21 billion, driven by acquisitions like Oakleaf, increased collection and disposal yield, and higher volumes. However, operating income decreased to $1.367 billion from $1.476 billion in the prior year, impacted by the same factors affecting quarterly results, particularly the significant drop in recyclable commodity prices. The company is undertaking a significant reorganization to streamline operations and reduce costs, with further charges expected in the fourth quarter. Management is focused on customer growth, operational efficiency, and leveraging technology to drive long-term value.

Financial Highlights

51 data points
Beta

Revenue

$3.46B

35.6% Gross Margin

Net Income

$214.00M

6.2% Net Margin

EPS (Diluted)

$0.46

Total Assets

$23.07B

Cash & Equivalents

$398.00M

Free Cash Flow

$574.00M

Financial Statements
Beta
Revenue$3.46B
Cost of Revenue$2.23B
Gross Profit$1.23B
SG&A Expenses$335.00M
Operating Expenses$2.96B
Operating Income$500.00M
Net Income$214.00M
EPS (Basic)$0.46
EPS (Diluted)$0.46
Shares Outstanding (Basic)464.10M
Shares Outstanding (Diluted)464.90M

Key Highlights

  • 1Third-quarter revenue decreased 1.7% year-over-year to $3.46 billion, primarily due to lower recyclable commodity prices (-$176 million) and a decline in waste-to-energy business revenues.
  • 2Net income attributable to Waste Management, Inc. for the third quarter was $214 million ($0.46/share), down from $272 million ($0.58/share) in Q3 2011, impacted by restructuring charges ($0.06/share), impairment charges ($0.08/share), and labor disputes ($0.01/share).
  • 3For the first nine months of 2012, revenues increased 2.4% to $10.21 billion, driven by acquisitions (notably Oakleaf), improved collection/disposal yield, and higher volumes.
  • 4Operating income for the first nine months decreased to $1.367 billion from $1.476 billion in the prior year, largely due to the significant decline in recyclable commodity prices and other market factors.
  • 5Free cash flow for the nine months ended September 30, 2012, was $614 million, a decrease from $867 million in the prior year, impacted by lower operating cash flows and increased capital expenditures.
  • 6The company announced a significant operational reorganization in July 2012, aiming to streamline management and reduce costs, with estimated additional charges of $20-$30 million in Q4 2012.
  • 7Debt levels increased slightly, with total debt at $9.99 billion as of September 30, 2012, up from $9.76 billion at December 31, 2011, though interest expense saw a modest increase due to debt refinancing at lower rates.

Frequently Asked Questions

Revenue decreased by 1.7% to $3.46 billion primarily due to a significant decline in recyclable commodity prices, which reduced revenues by $176 million. Additionally, revenues from the waste-to-energy business were lower, partly due to the expiration and renegotiation of long-term disposal contracts. These decreases were partially offset by revenue growth from acquisitions, such as Oakleaf, and a slight increase in yield from collection and disposal services.

Net income attributable to Waste Management, Inc. decreased to $214 million ($0.46/share) from $272 million ($0.58/share) due to several factors. These included pre-tax charges of $47 million related to the July 2012 restructuring and integration costs, impairment charges totaling $45 million on investments and related assets, and a $6 million charge from a union labor dispute. These items collectively had a significant negative impact on earnings per share.

The company's total debt stood at $9.99 billion as of September 30, 2012, a slight increase from $9.76 billion at the end of 2011. Despite increased debt levels, interest expense saw only a modest rise due to successful debt refinancing at lower interest rates. For the first nine months of 2012, free cash flow was $614 million. The company generated $1.718 billion in cash from operating activities, which was used to fund investing activities, including capital expenditures and acquisitions, and to manage financing activities such as debt repayments and dividend payments.

Waste Management announced a reorganization in July 2012 to streamline management and reduce costs, expected to be completed by the end of 2012. This initiative is estimated to eliminate approximately 700 positions. While the company incurred $44 million in pre-tax charges in Q3 2012 related to this restructuring, further charges of $20-$30 million are anticipated in the fourth quarter. Management expects these efforts to improve operational efficiency and cost structure in the long term.