01—Abstract
Summary
Summary of the 10-Q filed October 23, 2019. Cited figures are marked; the original filing is the authoritative source.
Waste Management Inc. (WM) reported solid third-quarter and year-to-date results for 2019, showcasing revenue growth driven by higher collection and landfill volumes, as well as increased pricing power.
The company's operating income saw a notable increase, reflecting operational efficiencies and successful cost management, despite some headwinds in the recycling segment due to lower commodity prices. Significant investments were made in capital expenditures to support growth and acquisitions, including the pending acquisition of Advanced Disposal Services, Inc., which is expected to close in early 2020 and is subject to regulatory approvals. The company's balance sheet strengthened with increased cash and cash equivalents, partly due to significant debt issuances, which were strategically used to refinance higher-coupon debt and fund growth initiatives.
Financially, WM demonstrated strong operating cash flow generation, supporting dividend payments and share repurchases, though free cash flow was slightly impacted by accelerated capital expenditures. The company also made progress on its strategic initiatives, emphasizing a people-first, technology-led approach to enhance customer experience and drive profitable growth.
While environmental and litigation matters are ongoing, management expects these to not materially affect the company's financial position. Overall, the report indicates a stable and growing business with a clear strategy for continued value creation.
02—Key points
Key Highlights
- Total revenues increased by 3.8% to $3.97 billion for the third quarter of 2019, driven by volume growth and price increases in collection and disposal services.
- Income from operations rose by 5.0% to $734 million in Q3 2019, indicating improved operational efficiency and cost management.
- Net income attributable to Waste Management, Inc. was $495 million ($1.16 per diluted share) for Q3 2019, a slight decrease from the prior year, impacted by increased interest expense from recent debt issuances.
- The company maintained a strong cash flow from operations of $2.85 billion for the first nine months of 2019, though free cash flow saw a slight decrease due to increased capital expenditures.
- Significant debt financing activities occurred, including a $4.0 billion senior notes issuance and a $377 million Canadian senior notes issuance, primarily to refinance existing debt and fund acquisitions.
- The pending acquisition of Advanced Disposal Services, Inc. is on track for closing in Q1 2020, subject to regulatory approvals, representing a significant strategic move for market expansion.
- Capital expenditures increased by 20.6% year-over-year to $1.53 billion for the first nine months of 2019, reflecting strategic investments in fleet and landfill infrastructure.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2019, Waste Management Inc kept $0.12.
- Revenue$3.97B100.0%
- Cost of revenue−$2.44B61.5%
- Gross profit$1.53B38.5%
- Operating costs−$792.0M20.0%
- Operating income$734.0M18.5%
- Interest, other & tax−$239.0M6.0%
- Net income$495.0M12.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed October 23, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $3.97B$3.82B | +3.8% |
| Cost of Revenue | $2.44B$2.37B | +2.9% |
| Gross Profit | $1.53B$1.45B | +5.3% |
| SG&A Expenses | $386.00M$345.00M | +11.9% |
| Operating Expenses | $3.23B$3.12B | +3.5% |
| Operating Income | $734.00M$699.00M | +5.0% |
| Net Income | $495.00M$499.00M | −0.8% |
| EPS (Basic) | $1.17$1.16 | +0.9% |
| EPS (Diluted) | $1.16$1.16 | 0.0% |
| Shares Outstanding (Basic) | 424.50M427.90M | −0.8% |
| Shares Outstanding (Diluted) | 427.40M430.80M | −0.8% |
05—Questions
Frequently Asked Questions
What were the primary drivers of revenue growth in the third quarter of 2019?
Revenue growth was primarily driven by an increase in collection and landfill volume, higher pricing (yield) in the collection and disposal business, and contributions from acquisitions. These factors were partially offset by lower market prices for recycling commodities.
How did the company's debt structure change during this period?
Waste Management issued $4.0 billion in senior notes and C$500 million ($377 million) in Canadian senior notes. These issuances were used to refinance higher-coupon debt, fund acquisitions like Petro Waste, and for general corporate purposes. The company also repaid a significant portion of its commercial paper.
What is the status and impact of the pending Advanced Disposal acquisition?
The acquisition of Advanced Disposal is proceeding as planned, with a targeted closing in the first quarter of 2020, pending regulatory approvals. This acquisition is a key strategic initiative to expand Waste Management's solid waste network and market presence. The financial statements reflect costs associated with preparing for this transaction.
How is the company managing the decline in recycling commodity prices?
While lower recycling commodity prices have negatively impacted revenue, Waste Management is working to mitigate this by assessing fees to cover increased processing costs and higher contamination rates. The company anticipates potential improvements in the market with new domestic mill projects but does not expect material changes in commodity prices in the short term.
06—Continue