01—Abstract
Summary
Summary of the 10-Q filed October 26, 2016. Cited figures are marked; the original filing is the authoritative source.
Waste Management Inc. (WM) reported third quarter and year-to-date results for 2016, showcasing revenue growth driven by both organic increases and strategic acquisitions.
Total revenues for the three months ended September 30, 2016, rose to $3.55 billiona from $3.36 billion in the prior year period, a 5.6% increase, primarily attributed to yield improvements and volume growth, as well as the impact of the Southern Waste Systems/Sun Recycling (SWS) acquisition. Despite revenue growth, net income attributable to Waste Management, Inc. for the third quarter saw a slight decrease to $302 million ($0.68 per diluted share) from $335 million ($0.74 per diluted share) in the prior year. This was largely due to $106 million in pre-tax charges related to divestitures, asset impairments, and unusual items, including a landfill impairment and an increase in environmental remediation liabilities.
For the first nine months of 2016, net income increased to $847 millionb from $480 million in the same period of 2015, benefiting from the absence of significant debt extinguishment losses recorded in the prior year. The company also demonstrated strong free cash flow generation, indicating continued financial strength and flexibility.
02—Key points
Key Highlights
- Revenue increased by 5.6% to $3.55 billion for the third quarter of 2016, driven by a 3.8% internal revenue growth from yield and volume, and 1.9% from acquisitions.
- Net income attributable to Waste Management, Inc. for the third quarter decreased to $302 million from $335 million in the prior year, primarily due to $106 million in pre-tax charges related to impairments and unusual items.
- Year-to-date net income (nine months) increased to $847 million compared to $480 million in the prior year, largely due to the absence of a significant debt extinguishment loss recorded in 2015.
- Operating expenses increased by 5.8% in Q3 2016, largely due to incremental costs from acquisitions and higher volumes, though operating expenses as a percentage of revenue remained stable year-over-year.
- The company completed the acquisition of Southern Waste Systems/Sun Recycling (SWS) for $525 million in January 2016, contributing to revenue growth.
- Free cash flow for the first nine months of 2016 was $1.277 billion, an increase from $1.222 billion in the same period of 2015, indicating strong cash generation.
- The company repurchased $500 million of its common stock in the first nine months of 2016, demonstrating a commitment to returning capital to shareholders.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2016, Waste Management Inc kept $0.09.
- Revenue$3.55B100.0%
- Cost of revenue−$2.22B62.5%
- Gross profit$1.33B37.5%
- Operating costs−$772.0M21.8%
- Operating income$560.0M15.8%
- Interest, other & tax−$256.0M7.2%
- Net income$304.0M8.6%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2016filed October 26, 2016Financial Statements
Q3 FY2016 against Q3 FY2015
| Line item | Q3 FY2016Q3 FY2015 | Change |
|---|---|---|
| Revenue | $3.55B$3.36B | +5.6% |
| Cost of Revenue | $2.22B$2.10B | +5.8% |
| Gross Profit | $1.33B$1.26B | +5.3% |
| SG&A Expenses | $330.00M$330.00M | 0.0% |
| Operating Expenses | $2.99B$2.76B | +8.3% |
| Operating Income | $560.00M$601.00M | −6.8% |
| Net Income | $304.00M$337.00M | −9.8% |
| EPS (Basic) | $0.68$0.75 | −9.3% |
| EPS (Diluted) | $0.68$0.74 | −8.1% |
| Shares Outstanding (Basic) | 442.90M449.60M | −1.5% |
| Shares Outstanding (Diluted) | 445.70M452.70M | −1.5% |
05—Questions
Frequently Asked Questions
What is the primary driver of revenue growth for Waste Management in the third quarter of 2016?
Revenue growth in the third quarter of 2016 was primarily driven by a combination of internal growth from yield (pricing strategies) and volume increases, along with contributions from recent acquisitions, most notably the acquisition of Southern Waste Systems/Sun Recycling (SWS).
What impacted the decrease in net income for the third quarter of 2016 compared to the prior year?
The decrease in net income for the third quarter of 2016 was primarily due to $106 million in pre-tax charges related to 'Expense from divestitures, asset impairments and unusual items.' These included a landfill impairment, an adjustment to environmental remediation liabilities, a goodwill impairment, and a loss on the sale of an organics company.
How did the company's debt position change during the period?
Total debt increased from $8.93 billion at December 31, 2015, to $9.26 billion at September 30, 2016. This increase was primarily due to net borrowings under the revolving credit facility to fund acquisitions and capital expenditures, partially offset by debt repayments.
What is the company's outlook regarding environmental remediation liabilities?
The company has significant environmental remediation liabilities, which saw an increase of $42 million during the nine months ended September 30, 2016, related to a closed site in Harris County, Texas. While the company accrues for these liabilities based on probable and reasonably estimable costs, it acknowledges that ultimate responsibility could differ from current estimates and notes that a $42 million charge was recorded related to the San Jacinto waste pits. The company continues to monitor and adjust these accruals.
06—Continue