01—Abstract
Summary
Summary of the 10-Q filed July 25, 2019. Cited figures are marked; the original filing is the authoritative source.
Waste Management Inc. (WM) reported solid revenue growth in its second quarter and first half of 2019, driven by increased volumes in its core collection and disposal services and strategic pricing initiatives.
While overall operating income saw a slight decrease year-over-year, this was influenced by non-recurring items, including gains from divestitures in the prior year and a significant loss on early debt extinguishment in the current quarter. The company successfully raised substantial capital through a senior notes issuance, intended to partly finance the pending acquisition of Advanced Disposal Services, Inc. (ADS), a move poised to significantly expand WM's operational footprint. Despite challenges in recycling commodity prices, WM demonstrated resilience through improved collection and disposal yields and disciplined cost management.
The company's balance sheet remains robust, with substantial cash and cash equivalents and well-managed debt levels, supported by strong operating cash flow. Investors should note the strategic importance of the ADS acquisition, which represents a major growth catalyst, alongside ongoing efforts in operational efficiency and technology integration.
02—Key points
Key Highlights
- Revenue increased by 5.5% to $3,946 million for the three months ended June 30, 2019, compared to $3,739 million in the prior year, driven by higher volumes and improved pricing (yield) in collection and disposal services.
- The company successfully issued $4.0 billion in senior notes, with net proceeds intended for the pending acquisition of Advanced Disposal Services, Inc. (ADS) and general corporate purposes.
- Operating income for the quarter was $696 million, a decrease from $715 million in the prior year, impacted by a $84 million loss on early debt extinguishment.
- The pending acquisition of Advanced Disposal Services, Inc. for an enterprise value of $4.9 billion is a significant strategic move expected to close in Q1 2020.
- Net cash provided by operating activities increased to $1,900 million for the six months ended June 30, 2019, up from $1,784 million in the prior year.
- Capital expenditures increased significantly to $1,049 million for the first six months of 2019, reflecting accelerated spending to support business growth.
- Free cash flow for the six months ended June 30, 2019, was $871 million, a decrease from $1,044 million in the prior year, primarily due to higher capital expenditures.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Waste Management Inc kept $0.10.
- Revenue$3.95B100.0%
- Cost of revenue−$2.44B61.9%
- Gross profit$1.50B38.1%
- Operating costs−$807.0M20.5%
- Operating income$696.0M17.6%
- Interest, other & tax−$315.0M8.0%
- Net income$381.0M9.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed July 25, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $3.95B$3.74B | +5.5% |
| Cost of Revenue | $2.44B$2.31B | +5.6% |
| Gross Profit | $1.50B$1.43B | +5.4% |
| SG&A Expenses | $391.00M$365.00M | +7.1% |
| Operating Expenses | $3.25B$3.02B | +7.5% |
| Operating Income | $696.00M$715.00M | −2.7% |
| Net Income | $381.00M$499.00M | −23.6% |
| EPS (Basic) | $0.90$1.16 | −22.4% |
| EPS (Diluted) | $0.89$1.15 | −22.6% |
| Shares Outstanding (Basic) | 424.80M429.90M | −1.2% |
| Shares Outstanding (Diluted) | 427.50M432.30M | −1.1% |
05—Questions
Frequently Asked Questions
What is the financial impact of the pending Advanced Disposal acquisition?
The acquisition of Advanced Disposal Services, Inc. (ADS) represents a significant strategic development with an enterprise value of $4.9 billion. It is expected to close in the first quarter of 2020 and is being financed partly by the $4.0 billion in senior notes issued in May 2019. This acquisition is anticipated to expand Waste Management's operational footprint and market presence.
How did the company manage its debt during the quarter?
Waste Management issued $4.0 billion in senior notes in May 2019. Concurrently, it retired $257 million of high-coupon senior notes, incurring an $84 million loss on early extinguishment of debt. The company's total debt increased but remains manageable, with strong operating cash flow supporting its obligations. Significant liquidity is available through its $2.75 billion revolving credit facility.
What challenges did the company face, particularly in its recycling business?
The company experienced a significant decrease in revenues from recycling commodities due to lower market prices, which were down 33% and 30% for the three and six months ended June 30, 2019, respectively. This decline is attributed to decreased global demand and its impact on commodity prices, particularly for cardboard. Waste Management has partially offset this by implementing fees to cover higher handling costs for contaminated materials.
How did operating expenses change, and what factors influenced them?
Operating expenses increased by $130 million primarily due to higher volumes and cost inflation across categories like labor, maintenance, and subcontractor costs. The company also incurred a $16 million non-cash charge to write off certain equipment costs and a $7 million charge related to the remeasurement of environmental remediation obligations due to a decrease in U.S. treasury rates.
06—Continue