10-QPeriod: Q3 FY2018

WASTE MANAGEMENT INC Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 25, 2018For Securities:WM

Summary

Waste Management Inc. (WM) reported solid financial results for the period ending September 29, 2018. Revenue increased by 2.9% year-over-year to $3.82 billion, driven by strong volume growth and increased yield in their traditional Solid Waste business, despite lower commodity prices for recycling. Net income attributable to Waste Management, Inc. rose significantly to $1.39 billion for the nine months ended September 30, 2018, compared to $1.05 billion in the prior year, reflecting improved operating results and the favorable impact of tax reform which lowered the effective tax rate. The company also demonstrated a strong commitment to shareholder returns, allocating $399 million to share repurchases and dividends during the third quarter. Management continues to focus on strategic initiatives, including yield management and cost control, to drive profitable growth. While facing challenges like declining recycling commodity prices, WM is adapting and maintaining its leading position in the North American waste management industry.

Financial Highlights

52 data points
Beta

Revenue

$3.82B

37.9% Gross Margin

Net Income

$499.00M

13.1% Net Margin

EPS (Diluted)

$1.16

Total Assets

$22.59B

Cash & Equivalents

$83.00M

Free Cash Flow

$874.00M

Financial Statements
Beta
Revenue$3.82B
Cost of Revenue$2.37B
Gross Profit$1.45B
SG&A Expenses$345.00M
Operating Expenses$3.12B
Operating Income$699.00M
Net Income$499.00M
EPS (Basic)$1.16
EPS (Diluted)$1.16
Shares Outstanding (Basic)427.90M
Shares Outstanding (Diluted)430.80M

Key Highlights

  • 1Revenue increased 2.9% to $3.82 billion for the three months ended September 30, 2018, driven by volume growth and yield in the Solid Waste business.
  • 2Net income attributable to Waste Management, Inc. increased to $1.39 billion for the nine months ended September 30, 2018, up from $1.05 billion in the prior year.
  • 3Diluted earnings per share were $1.16 for the quarter and $3.22 for the nine months ended September 30, 2018, up from $0.87 and $2.36 respectively in the prior year.
  • 4The effective income tax rate decreased significantly to 16.6% for the quarter and 18.9% for the nine months due to the enactment of tax reform reducing the federal corporate income tax rate.
  • 5Cash flow from operating activities was robust, totaling $2.66 billion for the nine months ended September 30, 2018.
  • 6The company returned significant capital to shareholders through $750 million in common stock repurchases and $605 million in cash dividends for the nine months ended September 30, 2018.
  • 7The company renegotiated its revolving credit facility, increasing capacity to $2.75 billion and extending the term to June 2023.

Frequently Asked Questions

Revenue increased by 2.9% to $3.82 billion, primarily due to higher volumes from improving market conditions and increased yield in the company's collection and disposal business. This growth was partially offset by lower market prices for recycling commodities.

The Tax Cuts and Jobs Act significantly reduced Waste Management's effective income tax rate. The federal corporate income tax rate decreased from 35% to 21% effective January 1, 2018. This contributed to a substantial increase in net income attributable to Waste Management, Inc. for the nine-month period, as the lower tax rate reduced overall income tax expense.

Waste Management actively returns capital to shareholders through a combination of common stock repurchases and cash dividends. For the nine months ended September 30, 2018, the company repurchased $750 million of its stock and paid $605 million in cash dividends. The company had $500 million remaining authorization for future share repurchases as of September 30, 2018.

A significant challenge is the disruption and downward price pressure in the global market for recycling commodities, largely due to restrictions imposed by the Chinese government. This has led to lower market prices for recycled fiber and other commodities, negatively impacting revenues and earnings from the recycling line of business.