01—Abstract
Summary
Summary of the 10-Q filed July 29, 2014. Cited figures are marked; the original filing is the authoritative source.
Waste Management, Inc. (WM) reported its second quarter 2014 results, showcasing a modest increase in revenue driven by positive yield on collection and disposal operations and strategic acquisitions, partially offset by lower volumes and divestitures.
While net income attributable to Waste Management, Inc. decreased compared to the prior year period, largely due to a significant pre-tax loss from the divestiture of its Puerto Rico operations and other assets, as well as tax charges to repatriate cash, the company's operational performance remained resilient. The company highlighted improvements in operating expenses as a percentage of revenue and growth in income from operations. Furthermore, Waste Management made progress in its strategic priorities, including pricing discipline and cost control.
The report also noted a significant subsequent event: the agreement to sell its Wheelabrator business for $1.94 billiona, signaling a strategic shift. Investors should note the company's continued focus on free cash flow generation and its prudent management of debt and capital expenditures.
02—Key points
Key Highlights
- Total revenue increased by 1.0% to $3,561 million for the three months ended June 30, 2014, compared to $3,526 million in the prior year period.
- Income from operations grew to $532 million, a 4.3% increase from $510 million in the same period last year, indicating improved operational efficiency.
- Net income attributable to Waste Management, Inc. decreased to $210 million ($0.45 per diluted share) from $244 million ($0.52 per diluted share) in Q2 2013, impacted by a $25 million loss on divestitures and $32 million in tax charges.
- Free cash flow generation remained strong, with $931 million for the six months ended June 30, 2014, compared to $695 million in the prior year period.
- The company repaid $1.925 billion in debt and made $1.500 billion in new borrowings during the first half of 2014, demonstrating active debt management.
- A significant subsequent event disclosed is the agreement to sell the Wheelabrator business for $1.94 billion, expected to close by the end of 2014.
- Cash and cash equivalents increased to $137 million from $58 million at the end of 2013, improving liquidity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2014, Waste Management Inc kept $0.06.
- Revenue$3.56B100.0%
- Cost of revenue−$2.30B64.6%
- Gross profit$1.26B35.4%
- Operating costs−$728.0M20.4%
- Operating income$532.0M14.9%
- Interest, other & tax−$322.0M9.0%
- Net income$210.0M5.9%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2014filed July 29, 2014Financial Statements
Q2 FY2014 against Q2 FY2013
| Line item | Q2 FY2014Q2 FY2013 | Change |
|---|---|---|
| Revenue | $3.56B$3.53B | +1.0% |
| Cost of Revenue | $2.30B$2.31B | −0.4% |
| Gross Profit | $1.26B$1.22B | +3.7% |
| SG&A Expenses | $353.00M$353.00M | 0.0% |
| Operating Expenses | $3.03B$3.02B | +0.4% |
| Operating Income | $532.00M$510.00M | +4.3% |
| Net Income | $210.00M$244.00M | −13.9% |
| EPS (Basic) | $0.45$0.52 | −13.5% |
| EPS (Diluted) | $0.45$0.52 | −13.5% |
| Shares Outstanding (Basic) | 465.90M467.90M | −0.4% |
| Shares Outstanding (Diluted) | 468.00M469.40M | −0.3% |
05—Questions
Frequently Asked Questions
What is the main reason for the decrease in net income compared to the prior year?
The decrease in net income attributable to Waste Management, Inc. was primarily due to a $25 million pre-tax loss recognized from the divestiture of its Puerto Rico operations and certain other collection and landfill assets. Additionally, the company incurred $32 million in tax charges related to repatriating accumulated cash prior to this divestment. These events had a combined negative impact of $0.12 on diluted earnings per share.
How is the company managing its debt and what is its current debt position?
Waste Management actively managed its debt, with total debt decreasing from $10.226 billion at the end of 2013 to $9.797 billion as of June 30, 2014. During the first half of 2014, the company repaid $1.925 billion in debt and incurred $1.500 billion in new borrowings. The company had $137 million in cash and cash equivalents, providing a solid liquidity position.
What is the significance of the announced sale of the Wheelabrator business?
The announced agreement to sell the Wheelabrator business for $1.94 billion in cash, expected to close by the end of 2014, represents a significant strategic divestiture. This sale may indicate a focus on core waste management operations and a reallocation of capital. The company will enter into a long-term agreement to supply waste to certain Wheelabrator facilities post-closing.
Can you explain the change in revenue growth drivers?
Revenue growth for the quarter was primarily driven by a 2.3% increase in average yield on collection and disposal operations, contributing $66 million, and acquisitions (notably RCI operations) adding $37 million. These positive impacts were partially offset by lower volumes and divestitures, which decreased revenue by $51 million and $14 million, respectively.
06—Continue