10-QPeriod: Q2 FY2020

WASTE MANAGEMENT INC Quarterly Report for Q2 Ended Jun 30, 2020

Filed July 30, 2020For Securities:WM

Summary

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 billion 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 million 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.

Financial Highlights

52 data points
Beta

Revenue

$3.56B

38.8% Gross Margin

Net Income

$307.00M

8.6% Net Margin

EPS (Diluted)

$0.72

Total Assets

$26.62B

Cash & Equivalents

$2.66B

Free Cash Flow

$856.00M

Financial Statements
Beta
Revenue$3.56B
Cost of Revenue$2.18B
Gross Profit$1.38B
SG&A Expenses$377.00M
Operating Expenses$3.03B
Operating Income$527.00M
Net Income$307.00M
EPS (Basic)$0.73
EPS (Diluted)$0.72
Shares Outstanding (Basic)422.30M
Shares Outstanding (Diluted)423.90M

Key Highlights

  • 1Revenue 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.
  • 2Operating 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%.
  • 3Income 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.
  • 4Net 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.
  • 5Net 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.
  • 6Free cash flow remained strong at $423 million, only a slight decrease from $440 million in the prior year, due to reduced capital expenditures.
  • 7The 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.

Frequently Asked Questions

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.

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.

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.

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.