10-QPeriod: Q2 FY2015

WASTE MANAGEMENT INC Quarterly Report for Q2 Ended Jun 30, 2015

Filed July 23, 2015For Securities:WM

Summary

Waste Management Inc. (WM) reported its second quarter 2015 financial results, showing a decrease in revenue primarily due to the divestiture of its Wheelabrator business and lower volumes. Despite revenue challenges, net income attributable to Waste Management, Inc. increased to $274 million ($0.60 per diluted share) from $210 million ($0.45 per diluted share) in the prior year's quarter. This improvement was largely driven by a significant reduction in interest expense following debt refinancing and a lower effective tax rate. The company also saw a substantial increase in cash flow from operations, benefiting from lower income tax and interest payments, although this was partially offset by higher annual incentive plan payments. The company completed the acquisition of Deffenbaugh Disposal, Inc. for $416 million, expanding its Midwest presence. Additionally, WM continued its focus on capital allocation, repurchasing $300 million of its common stock under an accelerated share repurchase agreement and authorizing up to $1 billion in future share repurchases. Management expressed confidence in the company's strategy to drive financial performance through customer focus, operational improvements, cost control, and strategic growth opportunities.

Financial Highlights

54 data points
Beta

Revenue

$3.31B

34.8% Gross Margin

Net Income

$273.00M

8.2% Net Margin

EPS (Diluted)

$0.60

Total Assets

$20.58B

Cash & Equivalents

$273.00M

Free Cash Flow

$816.00M

Financial Statements
Beta
Revenue$3.31B
Cost of Revenue$2.16B
Gross Profit$1.15B
SG&A Expenses$322.00M
Operating Expenses$2.81B
Operating Income$502.00M
Net Income$273.00M
EPS (Basic)$0.60
EPS (Diluted)$0.60
Shares Outstanding (Basic)455.50M
Shares Outstanding (Diluted)458.00M

Key Highlights

  • 1Revenue decreased by 6.9% year-over-year to $3.315 billion, primarily due to divestitures (notably Wheelabrator) and lower volumes.
  • 2Net income attributable to Waste Management, Inc. increased to $274 million ($0.60/share) from $210 million ($0.45/share) in Q2 2014.
  • 3Interest expense significantly decreased due to debt refinancing, with a substantial charge recorded for the early extinguishment of debt.
  • 4Acquired Deffenbaugh Disposal, Inc. for $416 million, expanding Midwest operations.
  • 5Completed an accelerated share repurchase (ASR) agreement for $300 million in common stock and announced authorization for up to $1 billion in future repurchases.
  • 6Net cash provided by operating activities increased by $261 million to $816 million for the quarter, aided by lower tax and interest payments.
  • 7The company recorded a $55 million charge related to withdrawal from underfunded multiemployer pension plans.

Frequently Asked Questions

The primary driver for the revenue decrease was the divestiture of the Wheelabrator business in December 2014, which reduced revenues by $193 million. Lower volumes, lower fuel surcharges and mandated fees, and commodity price declines also contributed to the decrease. These were partially offset by positive yield on collection and disposal operations and revenue from the acquisition of Deffenbaugh.

The company refinanced a significant portion of its high-coupon senior notes in the first half of 2015, issuing $1.8 billion in new senior notes. This resulted in a substantial reduction in interest expense, which contributed to the increase in net income. However, the refinancing also led to a significant 'Loss on early extinguishment of debt' of $552 million for the six months ended June 30, 2015, due to make-whole premiums and tender offer costs.

Waste Management reported an increase in free cash flow to $579 million for the quarter and $864 million for the six months ended June 30, 2015. The company remains focused on capital allocation, having repurchased $300 million in common stock via an ASR and authorizing up to $1 billion in future repurchases. Management views free cash flow as indicative of its ability to pay dividends, repurchase stock, fund acquisitions, and repay debt.

The acquisition of Deffenbaugh Disposal, Inc. in March 2015 contributed $48 million in revenue and less than $1 million in net losses for both the three and six months ended June 30, 2015. While it expanded the company's Midwest operations and contributed to revenue, its immediate impact on the overall financial results was not substantial in this reporting period.