01—Abstract
Summary
Summary of the 10-Q filed July 23, 2015. Cited figures are marked; the original filing is the authoritative source.
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 milliona ($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 millionb, 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.
02—Key points
Key Highlights
- Revenue decreased by 6.9% year-over-year to $3.315 billion, primarily due to divestitures (notably Wheelabrator) and lower volumes.
- Net income attributable to Waste Management, Inc. increased to $274 million ($0.60/share) from $210 million ($0.45/share) in Q2 2014.
- Interest expense significantly decreased due to debt refinancing, with a substantial charge recorded for the early extinguishment of debt.
- Acquired Deffenbaugh Disposal, Inc. for $416 million, expanding Midwest operations.
- Completed an accelerated share repurchase (ASR) agreement for $300 million in common stock and announced authorization for up to $1 billion in future repurchases.
- Net cash provided by operating activities increased by $261 million to $816 million for the quarter, aided by lower tax and interest payments.
- The company recorded a $55 million charge related to withdrawal from underfunded multiemployer pension plans.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2015, Waste Management Inc kept $0.08.
- Revenue$3.31B100.0%
- Cost of revenue−$2.16B65.2%
- Gross profit$1.15B34.8%
- Operating costs−$650.0M19.6%
- Operating income$502.0M15.1%
- Interest, other & tax−$229.0M6.9%
- Net income$273.0M8.2%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2015filed July 23, 2015Financial Statements
Q2 FY2015 against Q2 FY2014
| Line item | Q2 FY2015Q2 FY2014 | Change |
|---|---|---|
| Revenue | $3.31B$3.56B | −6.9% |
| Cost of Revenue | $2.16B$2.30B | −6.0% |
| Gross Profit | $1.15B$1.26B | −8.6% |
| SG&A Expenses | $322.00M$353.00M | −8.8% |
| Operating Expenses | $2.81B$3.03B | −7.1% |
| Operating Income | $502.00M$532.00M | −5.6% |
| Net Income | $273.00M$210.00M | +30.0% |
| EPS (Basic) | $0.60$0.45 | +33.3% |
| EPS (Diluted) | $0.60$0.45 | +33.3% |
| Shares Outstanding (Basic) | 455.50M465.90M | −2.2% |
| Shares Outstanding (Diluted) | 458.00M468.00M | −2.1% |
05—Questions
Frequently Asked Questions
What was the primary driver for the decrease in revenue for Q2 2015?
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.
How did the debt refinancing impact the company's financial results?
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.
What is the company's outlook on cash flow and capital allocation?
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.
Did the acquisition of Deffenbaugh Disposal, Inc. have a material impact on the results?
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.
06—Continue