01—Abstract
Summary
Summary of the 10-Q filed November 2, 2020. Cited figures are marked; the original filing is the authoritative source.
Waste Management, Inc. (WM) reported its third-quarter results for the period ending September 29, 2020.
The company demonstrated resilience in a challenging economic environment impacted by COVID-19, with revenues declining by 2.7% year-over-year to $3.86 billiona, an improvement from the previous quarter's decline. Despite revenue headwinds, particularly in industrial and commercial collection and landfill services, WM managed operating expenses effectively, achieving a 60.4% ratio to revenue, down from 61.5% in the prior year. This cost management, coupled with a slight increase in collection and disposal yield, helped mitigate the impact on income from operations, which stood at $680 million, a decrease from $734 million in the prior year.
The company also highlighted strong free cash flow generation of $691 millionb, an increase from $478 million in the prior year, supported by disciplined capital expenditure management and improved cash from operations. The acquisition of Advanced Disposal was completed on October 30, 2020, significantly expanding WM's footprint, with the company also completing necessary divestitures. WM maintained a strong liquidity position, with $703 million in cash and cash equivalents and significant unused credit facilities.
02—Key points
Key Highlights
- Revenues for the third quarter of 2020 were $3.86 billion, a slight decrease of 2.7% year-over-year, showing a recovery trend compared to the second quarter.
- Operating expenses were managed effectively, decreasing to 60.4% of revenue compared to 61.5% in the prior year, demonstrating cost control in a challenging environment.
- Income from operations was $680 million, down from $734 million in the prior year, reflecting the impact of reduced volumes due to COVID-19.
- The company generated strong free cash flow of $691 million in the third quarter, up from $478 million in the prior year, supported by operational efficiency and capital discipline.
- Waste Management successfully closed the acquisition of Advanced Disposal on October 30, 2020, expanding its market reach and customer base.
- The company maintained a strong liquidity position with $703 million in cash and cash equivalents and access to significant credit facilities.
- Despite pandemic-related challenges, Waste Management saw improvement in customer receipts and a reduction in the provision for bad debts during the third quarter.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2020, Waste Management Inc kept $0.10.
- Revenue$3.86B100.0%
- Cost of revenue−$2.33B60.4%
- Gross profit$1.53B39.6%
- Operating costs−$849.0M22.0%
- Operating income$680.0M17.6%
- Interest, other & tax−$290.0M7.5%
- Net income$390.0M10.1%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed November 2, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $3.86B$3.97B | −2.7% |
| Cost of Revenue | $2.33B$2.44B | −4.5% |
| Gross Profit | $1.53B$1.53B | +0.2% |
| SG&A Expenses | $416.00M$386.00M | +7.8% |
| Operating Expenses | $3.18B$3.23B | −1.6% |
| Operating Income | $680.00M$734.00M | −7.4% |
| Net Income | $390.00M$495.00M | −21.2% |
| EPS (Basic) | $0.92$1.17 | −21.4% |
| EPS (Diluted) | $0.92$1.16 | −20.7% |
| Shares Outstanding (Basic) | 422.70M424.50M | −0.4% |
| Shares Outstanding (Diluted) | 424.60M427.40M | −0.7% |
05—Questions
Frequently Asked Questions
How did the COVID-19 pandemic impact Waste Management's third-quarter performance?
The COVID-19 pandemic had a notable impact on Waste Management's third-quarter results, primarily leading to revenue declines of approximately $240 million due to reduced waste service needs from customers, particularly in industrial and commercial collection and landfill services. While volumes declined, the company implemented proactive cost management strategies, including optimizing routes, reducing overtime, and controlling discretionary expenses, which helped to mitigate the impact on operating expenses and profitability. The company also saw some volume recovery and improved customer receipts during the quarter.
What is the significance of the Advanced Disposal acquisition?
The acquisition of Advanced Disposal, which closed on October 30, 2020, is a significant strategic move for Waste Management. It expands the company's footprint, particularly in the Eastern half of the U.S., and adds approximately three million new commercial, industrial, and residential customers. To gain regulatory approval, WM completed necessary divestitures to GFL Environmental Inc. for $856.4 million in cash.
How did Waste Management manage its debt during this period?
Waste Management actively managed its debt during the nine months ended September 30, 2020. Key activities included the redemption of $3.0 billion of senior notes (SMR Notes) in July 2020 due to the acquisition's timeline, which resulted in a $52 million loss on early extinguishment of debt. The company also issued $181 million in new tax-exempt bonds and repaid $212 million of existing tax-exempt bonds. Despite the redemption, the company maintained access to its $3.5 billion revolving credit facility and had $600 million outstanding under its commercial paper program, demonstrating strong liquidity.
What is the outlook for Waste Management given the ongoing pandemic?
Waste Management acknowledges that the ultimate impacts of the COVID-19 pandemic on its long-term outlook remain uncertain and depend on future developments, including the pandemic's duration and the pace of economic recovery. However, the company's essential services, diversified customer base, and resilient business model provide a solid foundation. They continue to focus on operational execution, cost management, and strategic investments in technology to emerge from the pandemic as a stronger company and remain the service provider of choice.
06—Continue