01—Abstract
Summary
Summary of the 10-Q filed October 25, 2018. Cited figures are marked; the original filing is the authoritative source.
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 billiona, 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.
02—Key points
Key Highlights
- Revenue 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.
- Net 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.
- Diluted 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.
- The 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.
- Cash flow from operating activities was robust, totaling $2.66 billion for the nine months ended September 30, 2018.
- The 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.
- The company renegotiated its revolving credit facility, increasing capacity to $2.75 billion and extending the term to June 2023.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2018, Waste Management Inc kept $0.13.
- Revenue$3.82B100.0%
- Cost of revenue−$2.37B62.1%
- Gross profit$1.45B37.9%
- Operating costs−$750.0M19.6%
- Operating income$699.0M18.3%
- Interest, other & tax−$200.0M5.2%
- Net income$499.0M13.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2018filed October 25, 2018Financial Statements
Q3 FY2018 against Q3 FY2017
| Line item | Q3 FY2018Q3 FY2017 | Change |
|---|---|---|
| Revenue | $3.82B$3.72B | +2.9% |
| Cost of Revenue | $2.37B$2.30B | +3.1% |
| Gross Profit | $1.45B$1.41B | +2.5% |
| SG&A Expenses | $345.00M$356.00M | −3.1% |
| Operating Expenses | $3.12B$3.02B | +3.6% |
| Operating Income | $699.00M$701.00M | −0.3% |
| Net Income | $499.00M$386.00M | +29.3% |
| EPS (Basic) | $1.16$0.88 | +31.8% |
| EPS (Diluted) | $1.16$0.87 | +33.3% |
| Shares Outstanding (Basic) | 427.90M437.80M | −2.3% |
| Shares Outstanding (Diluted) | 430.80M440.80M | −2.3% |
05—Questions
Frequently Asked Questions
What drove the increase in revenue for the third quarter of 2018?
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.
How did the Tax Cuts and Jobs Act impact Waste Management's financial results?
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.
What is the company's strategy for returning capital to shareholders?
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.
What challenges is Waste Management facing, particularly concerning recycling?
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.
06—Continue