01—Abstract
Summary
Summary of the 10-Q filed July 30, 2020. Cited figures are marked; the original filing is the authoritative source.
Waste Management Inc. (WM) reported its second-quarter 2020 results, reflecting the initial impact of the COVID-19 pandemic on its operations.
While revenues declined due to reduced customer waste service needs, the company demonstrated resilience through proactive cost management and a focus on essential services. Despite a challenging economic environment, WM maintained a strong liquidity position and continued to advance its strategic priorities, including the pending acquisition of Advanced Disposal Services. The company's financial performance was marked by a decrease in operating revenues to $3.56 billiona from $3.95 billion in the prior year period, largely attributable to a COVID-19-related revenue impact of approximately $400 million.
However, operating expenses were reduced by $263 millionb through cost-saving measures, leading to a slight improvement in operating expenses as a percentage of revenue. Net income attributable to Waste Management, Inc. was $307 million, or $0.72 per diluted share. The company also managed its cash flows effectively, reporting $856 million in net cash provided by operating activities for the quarter, underscoring its commitment to maintaining financial strength amidst economic uncertainty.
02—Key points
Key Highlights
- Revenue declined by 9.8% to $3.56 billion in Q2 2020, primarily due to the COVID-19 pandemic's impact on customer waste service needs, resulting in an estimated $400 million revenue reduction for the quarter.
- Operating expenses decreased by $263 million (6.1%) to $2.18 billion, driven by proactive cost management in response to lower volumes, which led to operating expenses as a percentage of revenue improving from 61.9% to 61.2%.
- Income from operations decreased by 24.3% to $527 million, impacted by pandemic-related revenue declines, $61 million in non-cash impairment charges (primarily related to energy services assets), and investments in the planned acquisition of Advanced Disposal.
- Net income attributable to Waste Management, Inc. was $307 million ($0.72 per diluted share), down from $381 million ($0.89 per diluted share) in the prior year, partly due to increased interest expense related to the planned acquisition.
- Net cash provided by operating activities decreased to $856 million from $1.01 billion, primarily due to lower earnings and unfavorable working capital changes resulting from the pandemic, though partially offset by lower income tax payments and CARES Act payroll tax deferrals.
- Free cash flow remained strong at $423 million, only a slight decrease from $440 million in the prior year, due to reduced capital expenditures.
- The acquisition of Advanced Disposal Services remains a key strategic focus, with an amended merger agreement and an agreement for asset divestitures to GFL Environmental in place, targeting a closing by the end of Q3 2020.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2020, Waste Management Inc kept $0.09.
- Revenue$3.56B100.0%
- Cost of revenue−$2.18B61.2%
- Gross profit$1.38B38.8%
- Operating costs−$854.0M24.0%
- Operating income$527.0M14.8%
- Interest, other & tax−$220.0M6.2%
- Net income$307.0M8.6%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2020filed July 30, 2020Financial Statements
Q2 FY2020 against Q2 FY2019
| Line item | Q2 FY2020Q2 FY2019 | Change |
|---|---|---|
| Revenue | $3.56B$3.95B | −9.8% |
| Cost of Revenue | $2.18B$2.44B | −10.8% |
| Gross Profit | $1.38B$1.50B | −8.1% |
| SG&A Expenses | $377.00M$391.00M | −3.6% |
| Operating Expenses | $3.03B$3.25B | −6.6% |
| Operating Income | $527.00M$696.00M | −24.3% |
| Net Income | $307.00M$381.00M | −19.4% |
| EPS (Basic) | $0.73$0.90 | −18.9% |
| EPS (Diluted) | $0.72$0.89 | −19.1% |
| Shares Outstanding (Basic) | 422.30M424.80M | −0.6% |
| Shares Outstanding (Diluted) | 423.90M427.50M | −0.8% |
05—Questions
Frequently Asked Questions
How did COVID-19 impact Waste Management's financial performance in the second quarter of 2020?
COVID-19 significantly impacted Waste Management's financial performance, leading to an estimated $400 million reduction in revenue for the quarter due to decreased customer waste service needs. This also resulted in lower operating expenses as the company proactively managed costs in response to reduced volumes. While income from operations and net income declined, the company maintained strong operating cash flow and free cash flow through disciplined cost management and capital expenditure reductions.
What is the status of the Advanced Disposal Services acquisition?
Waste Management entered into an amended merger agreement to acquire Advanced Disposal Services on June 24, 2020, with an expected closing by the end of the third quarter of 2020. As part of regulatory requirements, Waste Management also agreed to divest certain assets to GFL Environmental. The transaction remains subject to customary closing conditions and regulatory approvals.
What were the key drivers of the decline in operating income?
The primary drivers for the decline in operating income were the revenue reductions caused by the COVID-19 pandemic, which impacted various lines of business including industrial and commercial collection, and landfill operations. Additionally, the company recorded $61 million in non-cash impairment charges, predominantly related to energy services assets. Investments made in preparation for the Advanced Disposal acquisition also contributed to higher expenses.
How is Waste Management managing its liquidity and capital resources amidst the pandemic?
Waste Management has maintained strong liquidity by focusing on cost management, reducing capital expenditures, and benefiting from the deferral of certain payroll taxes under the CARES Act. The company reported $856 million in net cash provided by operating activities for the quarter and $423 million in free cash flow. Furthermore, Waste Management entered into a new $3.0 billion revolving credit facility in July 2020 to enhance its liquidity and support future endeavors, including the Advanced Disposal acquisition.
06—Continue