2020 Guidance
Suspended Due to COVID-19 Uncertainty
Resilient
Business Model and Strong Balance Sheet Position the Company Well
in Challenging Environment
Waste Management, Inc. (NYSE: WM) today announced financial
results for the quarter ended March 31, 2020. Revenues for the
first quarter of 2020 were $3.73 billion compared with $3.70
billion for the same 2019 period. Net income for the quarter was
$361 million, or $0.85 per diluted share, compared with $347
million, or $0.81 per diluted share, for the first quarter of
2019.(a) On an adjusted basis, net income was $395 million, or
$0.93 per diluted share, in the first quarter of 2020, compared
with $402 million, or $0.94 per diluted share, in the first quarter
of 2019.(b)
The Company’s adjusted first quarter 2020 results exclude a
$0.05 per diluted share negative impact from advisory costs
incurred in connection with the pending acquisition of Advanced
Disposal Services, Inc., $0.02 per diluted share primarily from the
non-cash impairment of an unconsolidated investment, and $0.01 per
diluted share from costs incurred to support its plan to implement
a new enterprise resource planning system.
COVID-19 UPDATE
As COVID-19 disruptions escalated in the United States and
Canada during March, Waste Management took steps to protect its
workforce and continue to provide reliable service to its
customers.
“I am extremely proud of how our team has worked together to
proactively address the challenges we’ve faced as a result of the
coronavirus pandemic,” said Jim Fish, President and Chief Executive
Officer of Waste Management. “Our top priority as a leadership team
has been the health, safety and financial wellbeing of our 45,000
team members. In turn, our team members have continued to provide
essential services to customers and communities across North
America.
“As a leader in the industry, we also have a responsibility to
work with our customers as they defend the health of their
businesses,” Fish continued. “This is particularly true for small
businesses, the lifeblood of our economy.”
COVID-19 Response and
Impacts
Waste Management has responded to the COVID-19 pandemic by:
- Protecting frontline employees by supplementing customary
practices and daily operational routines with social distancing and
personal protective equipment enhancements.
- Promoting the health and financial wellbeing of its employees
by excusing COVID-19 related absences and providing a guarantee of
40 hours of weekly pay to all full-time employees during the
pandemic.
- Leveraging technology to quickly transition approximately
20,000 back-office employees to work from home – enabling these
team members to serve customers and support frontline employees
remotely.
- Partnering with its customers to adjust service levels and
extend payment terms.
- Working with municipalities to address increased residential
volumes and recycling challenges in areas where there have been
processing disruptions.
The Company had the following COVID-19-related business impacts
in the first quarter, beginning in March 2020:
- A reduction in landfill and industrial collection volumes.
While volume-driven revenue in the commercial collection business
held up relatively well in March, service decreases accelerated
late in the month and into the second quarter.
- An increase in container weights in the residential line of
business, which increased our cost to service these customers.
- A negative revenue impact of approximately $40 million.
- A $6 million increase in SG&A expenses, driven by
technology costs incurred to accelerate work-from-home
capabilities.
- A decline in operating EBITDA margin of approximately 40 basis
points, which the Company attributes to volume declines in our
higher-margin lines of business and cost pressures in the
residential line of business.(c) In its higher-margin lines of
business, the Company effectively flexed operating costs with
volume changes, particularly labor and fleet costs, mitigating
margin pressure.
Balance Sheet and Cash Flow
Considerations
- The Company continues to maintain a strong balance sheet and
liquidity position, with its current and forecasted leverage ratio
well within its revolving credit facility financial covenant and
more than $3 billion of available capacity under that credit
facility.
- The Company expects to generate strong free cash flow and
remains committed to its dividend program.
- As a prudent step to preserve cash in this uncertain
environment, the Company has temporarily suspended share
repurchases for the foreseeable future.
UPDATE ON 2020 OUTLOOK
The Company is suspending its 2020 financial guidance due to the
unprecedented impact of, and uncertainty created by, the COVID-19
pandemic.
“Our business model generates strong cash flow and is resilient
in any economic cycle. In past downturns, we have demonstrated the
ability to flex spending and manage capital expenditures to
generate strong free cash flow and return excess cash to our
shareholders. We expect to deliver on these priorities as we
continue to provide essential services to our customers during this
unprecedented pandemic,” Fish said. “At this time, we cannot
forecast with reasonable accuracy the duration of the coronavirus
disruptions, particularly for small businesses, or the pace of an
eventual recovery. We expect to resume providing financial guidance
when we have greater clarity.”
We anticipate a significant decrease in 2020 revenue from
planned levels as a result of COVID-19, driven by volume declines
in our landfill and industrial and commercial collection
businesses. To partially offset the impact of this significant
revenue decline, the Company is taking the following steps to
manage costs and capital spending without compromising long-term
strategic priorities or growth opportunities:
- Leveraging technology to enable swift route optimization,
- Dramatically reducing overtime hours,
- Limiting hiring and optimizing the existing workforce through
greatly improved retention and reduced turnover,
- Reducing or eliminating certain non-essential costs and
expenses like travel and entertainment and consulting costs,
- Reducing incentive compensation accruals, and
- Flexing capital expenditures to a level that is consistent with
volume changes.
KEY HIGHLIGHTS FOR THE FIRST
QUARTER OF 2020
Financial results for the first quarter were in line with the
Company’s expectations.
- In the first quarter of 2020, revenue growth was driven by
yield and volume growth in the Company’s collection and disposal
business, which contributed $74 million of incremental
revenue.
- Core price for the first quarter of 2020 was 5.5%.(d)
- Total Company operating EBITDA was $975 million for the first
quarter of 2020. On an adjusted basis, total Company operating
EBITDA was $1.01 billion for the first quarter of 2020.(b)
- In spite of a 30% decline in recycled commodity prices, the
Company grew operating EBITDA for its recycling business by almost
$3 million when compared to the first quarter of 2019 by reducing
costs and improving its fee-for-service model.
- In the first quarter of 2020, net cash provided by operating
activities was $765 million and free cash flow was $318
million.(b)
- The Company paid $236 million of dividends to shareholders and
repurchased $402 million of its shares in the first quarter of
2020.
Fish concluded, “Through this unprecedented pandemic, we have
managed the impact of the shutdown on our own people, our
customers, and our business extremely well. We are now turning our
focus to managing equally well through the coming re-start and to
using this as an opportunity to further differentiate ourselves
through permanent enhancements in our business processes and our
service offering to our customers. The strength and resiliency of
both our people and our business model give us confidence that we
can continue to deliver on our commitments to our customers and our
shareholders.”
(a)
For purposes of this press
release, all references to “Net income” refer to the financial
statement line item “Net income attributable to Waste Management,
Inc.”
(b)
Adjusted earnings per diluted
share, adjusted net income, adjusted operating EBITDA and free cash
flow are non-GAAP measures. Please see “Non-GAAP Financial
Measures” below and the reconciliations in the accompanying
schedules for more information.
(c)
Management defines operating
EBITDA as GAAP income from operations before depreciation and
amortization; this measure may not be comparable to
similarly-titled measures reported by other companies.
(d)
Core price is a performance
metric used by management to evaluate the effectiveness of our
pricing strategies; it is not derived from our financial statements
and may not be comparable to measures presented by other companies.
Core price is based on certain historical assumptions, which may
differ from actual results, to allow for comparability between
reporting periods and to reveal trends in results over time.
Beginning with the fourth quarter 2019, the Company has updated its
core price calculation. With advancements in technology, the
Company began collecting additional transactional customer level
data, which provides improved clarity of the impact of the
Company’s pricing activities. While this does not change the
year-over-year core price performance result, the new measure
reflects a more precise calculation in the evaluation of revenue
changes.
The Company will host a conference call at 10 a.m. (Eastern)
today to discuss the first quarter results. Information contained
within this press release will be referenced and should be
considered in conjunction with the call.
The conference call will be webcast live from the Investors
section of Waste Management’s website www.wm.com. To access the
conference call by telephone, please dial (877) 710-6139
approximately 10 minutes prior to the scheduled start of the call.
If you are calling from outside of the United States or Canada,
please dial (706) 643-7398. Please utilize conference ID number
4950049 when prompted by the conference call operator.
A replay of the conference call will be available on the
Company’s website www.wm.com and by telephone from approximately
1:00 PM (Eastern) today through 5:00 PM (Eastern) on Wednesday, May
20, 2020. To access the replay telephonically, please dial (855)
859-2056, or from outside of the United States or Canada dial (404)
537-3406 and use the replay conference ID number 4950049.
ABOUT WASTE MANAGEMENT
Waste Management, based in Houston, Texas, is the leading
provider of comprehensive waste management environmental services
in North America. Through its subsidiaries, the Company provides
collection, transfer, disposal services, and recycling and resource
recovery. It is also a leading developer, operator and owner of
landfill gas-to-energy facilities in the United States. The
Company’s customers include residential, commercial, industrial,
and municipal customers throughout North America. To learn more
information about Waste Management, visit www.wm.com or
www.thinkgreen.com.
FORWARD-LOOKING STATEMENTS
The Company, from time to time, provides estimates of financial
and other data, comments on expectations relating to future periods
and makes statements of opinion, view or belief about current and
future events. This press release contains a number of such
forward-looking statements, including but not limited to, all
statements regarding future performance or financial results of our
business; responses and impacts of COVID-19; future liquidity,
dividends and balance sheet strength; future free cash flow; share
repurchases; and discussion of the 2020 outlook. You should view
these statements with caution. They are based on the facts and
circumstances known to the Company as of the date the statements
are made. These forward-looking statements are subject to risks and
uncertainties that could cause actual results to be materially
different from those set forth in such forward-looking statements,
including but not limited to, increased competition; pricing
actions; failure to implement our optimization, growth, and cost
savings initiatives and overall business strategy; failure to
identify acquisition targets and negotiate attractive terms;
failure to consummate or integrate the acquisition of Advanced
Disposal Services, Inc. or other acquisitions; failure to obtain
the results anticipated from the acquisition of Advanced Disposal
Services, Inc. or other acquisitions; environmental and other
regulations, including developments related to emerging
contaminants and renewable fuel; commodity price fluctuations;
international trade restrictions; weakness in general economic
conditions and capital markets; public health risk and other
impacts of COVID-19 or similar pandemic conditions, including
increased costs, social and commercial disruption, service
reductions and other adverse effects on our business, financial
condition, results of operations and cash flows; failure to obtain
and maintain necessary permits; disposal alternatives and waste
diversion; declining waste volumes; failure to develop and protect
new technology; failure of technology to perform as expected,
including implementation of a new enterprise resource planning
system; failure to prevent, detect and address cybersecurity
incidents or comply with privacy regulations; significant
environmental or other incidents resulting in liabilities and brand
damage; significant storms and destructive events influenced by
climate change; labor disruptions; impairment charges; and negative
outcomes of litigation or governmental proceedings. Please also see
the Company’s filings with the SEC, including Part I, Item 1A of
the Company’s most recently filed Annual Report on Form 10-K as
updated by our subsequent quarterly reports on Form 10-Q, for
additional information regarding these and other risks and
uncertainties applicable to its business. The Company assumes no
obligation to update any forward-looking statement, including
financial estimates and forecasts, whether as a result of future
events, circumstances or developments or otherwise.
NON-GAAP FINANCIAL MEASURES
To supplement its financial information, the Company has
presented, and/or may discuss on the conference call, adjusted
earnings per diluted share, adjusted net income, adjusted operating
EBITDA, adjusted SG&A expenses and free cash flow. These are
non-GAAP financial measures, as defined in Regulation G of the
Securities Exchange Act of 1934, as amended. The Company reports
its financial results in compliance with GAAP but believes that
also discussing non-GAAP measures provides investors with (i)
financial measures the Company uses in the management of its
business and (ii) additional, meaningful comparisons of current
results to prior periods’ results by excluding items that the
Company does not believe reflect its fundamental business
performance and are not representative or indicative of its results
of operations. The Company’s non-GAAP results exclude the impact of
costs incurred in connection with the pending acquisition of
Advanced Disposal Services, Inc.
The Company discusses free cash flow because the Company
believes that it is indicative of its ability to pay its quarterly
dividends, repurchase common stock, fund acquisitions and other
investments and, in the absence of refinancings, to repay its debt
obligations. Free cash flow is not intended to replace “Net cash
provided by operating activities,” which is the most comparable
GAAP measure. The Company believes free cash flow gives investors
useful insight into how the Company views its liquidity, but the
use of free cash flow as a liquidity measure has material
limitations because it excludes certain expenditures that are
required or that the Company has committed to, such as declared
dividend payments and debt service requirements. The Company
defines free cash flow as net cash provided by operating
activities, less capital expenditures, plus proceeds from
divestitures of businesses and other assets (net of cash divested);
this definition may not be comparable to similarly-titled measures
reported by other companies.
The quantitative reconciliations of non-GAAP measures to the
most comparable GAAP measures are included in the accompanying
schedules. Non-GAAP measures should not be considered a substitute
for financial measures presented in accordance with GAAP.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In Millions, Except per Share
Amounts)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Operating revenues
$
3,729
$
3,696
Costs and expenses:
Operating
2,329
2,298
Selling, general and administrative
425
409
Depreciation and amortization
402
366
Restructuring
—
2
3,156
3,075
Income from operations
573
621
Other income (expense):
Interest expense, net
(112)
(96)
Equity in net losses of unconsolidated
entities
(26)
(9)
Other, net
—
(54)
(138)
(159)
Income before income taxes
435
462
Income tax expense
74
115
Consolidated net income
361
347
Less: Net loss attributable to
noncontrolling interests
—
—
Net income attributable to Waste
Management, Inc.
$
361
$
347
Basic earnings per common share
$
0.85
$
0.82
Diluted earnings per common share
$
0.85
$
0.81
Weighted average basic common shares
outstanding
424.2
424.5
Weighted average diluted common shares
outstanding
426.4
426.9
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In Millions)
(Unaudited)
March 31,
December 31,
2020
2019
ASSETS
Current assets:
Cash and cash equivalents
$
3,125
$
3,561
Receivables, net
2,168
2,319
Other
342
329
Total current assets
5,635
6,209
Property and equipment, net
12,900
12,893
Goodwill
6,498
6,532
Other intangible assets, net
494
521
Other
1,651
1,588
Total assets
$
27,178
$
27,743
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable, accrued liabilities and
deferred revenues
$
2,683
$
2,926
Current portion of long-term debt
387
218
Total current liabilities
3,070
3,144
Long-term debt, less current portion
13,065
13,280
Other
4,298
4,249
Total liabilities
20,433
20,673
Equity:
Waste Management, Inc. stockholders’
equity
6,743
7,068
Noncontrolling interests
2
2
Total equity
6,745
7,070
Total liabilities and equity
$
27,178
$
27,743
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Cash flows from operating activities:
Consolidated net income
$
361
$
347
Adjustments to reconcile consolidated net
income to net cash provided by operating activities:
Depreciation and amortization
402
366
Other
70
123
Change in operating assets and
liabilities, net of effects of acquisitions and divestitures
(68)
54
Net cash provided by operating
activities
765
890
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired
(1)
(394)
Capital expenditures
(459)
(471)
Proceeds from divestitures of businesses
and other assets (net of cash divested)
12
12
Other, net
(55)
53
Net cash used in investing activities
(503)
(800)
Cash flows from financing activities:
New borrowings
—
—
Debt repayments
(25)
(56)
Net commercial paper borrowings
—
357
Common stock repurchase program
(402)
(68)
Cash dividends
(236)
(223)
Exercise of common stock options
31
25
Tax payments associated with equity-based
compensation transactions
(33)
(30)
Other, net
(3)
37
Net cash provided by (used in) financing
activities
(668)
42
Effect of exchange rate changes on cash,
cash equivalents and restricted cash and cash equivalents
(4)
—
Increase (decrease) in cash, cash
equivalents and restricted cash and cash equivalents
(410)
132
Cash, cash equivalents and restricted cash
and cash equivalents at beginning of period
3,647
183
Cash, cash equivalents and restricted cash
and cash equivalents at end of period
$
3,237
$
315
WASTE MANAGEMENT, INC.
SUMMARY DATA SHEET
(In Millions)
(Unaudited)
Operating Revenues by Line of
Business
Three Months Ended
March 31,
2020
2019
Commercial
$
1,063
$
1,026
Residential
650
640
Industrial
693
680
Other collection
112
109
Total collection
2,518
2,455
Landfill
887
864
Transfer
441
412
Recycling
254
291
Other
430
431
Intercompany (a)
(801)
(757)
Total
$
3,729
$
3,696
Internal Revenue Growth
Period-to-Period Change for
the Three Months Ended March 31, 2020 vs. 2019
As a % of
As a % of
Related
Total
Amount
Business(b)
Amount
Company(c)
Collection and disposal
$
72
2.2%
Recycling commodities (d)
(59)
(21.0)
Fuel surcharges and mandated fees
(16)
(10.8)
Total average yield (e)
$
(3)
(0.1)
%
Volume
10
0.3
Internal revenue growth
7
0.2
Acquisitions
29
0.8
Divestitures
(1)
—
Foreign currency translation
(2)
(0.1)
Total
$
33
0.9
%
Period-to-Period Change for
the
Three Months Ended
March 31, 2020 vs.
2019
As a % of Related
Business(b)
Yield
Volume(f)
Commercial
2.3
%
2.0
%
Industrial
3.6
(2.3)
Residential
2.0
(1.2)
Total collection
2.5
0.1
MSW
3.0
0.7
Transfer
2.9
4.7
Total collection and disposal
2.2
%
(0.5)
%
______________________________
(a)
Intercompany revenues between lines of
business are eliminated in the Condensed Consolidated Financial
Statements included herein.
(b)
Calculated by dividing the increase or
decrease for the current year period by the prior year period’s
related business revenue adjusted to exclude the impacts of
divestitures for the current year period.
(c)
Calculated by dividing the increase or
decrease for the current year period by the prior year period’s
total Company revenue adjusted to exclude the impacts of
divestitures for the current year period.
(d)
Includes net impact of commodity price
variability and changes in fees.
(e)
The amounts reported herein represent the
changes in our revenue attributable to average yield for the total
Company.
(f)
Workday adjusted volume impact.
WASTE MANAGEMENT, INC. SUMMARY DATA SHEET (In
Millions) (Unaudited) Free Cash Flow Analysis
(a) Three Months Ended March 31,
2020
2019
Net cash provided by operating activities
$
765
$
890
Capital expenditures
(459)
(471)
Proceeds from divestitures of businesses and other assets (net of
cash divested)
12
12
Free cash flow
$
318
$
431
Three Months Ended March 31,
2020
2019
Supplemental Data Internalization of waste, based on
disposal costs
68.3%
66.2%
Landfill amortizable tons (in millions)
27.2
27.9
Acquisition Summary (b) Gross annualized
revenue acquired
2
105
Total consideration, net of cash acquired
1
395
Cash paid for acquisitions consummated during the period,
net of cash acquired
1
389
Cash paid for acquisitions including contingent
consideration and other items from prior periods, net of cash
acquired
2
394
Amortization, Accretion and Other Expenses for
Landfills: Three Months Ended March 31,
2020
2019
Landfill amortization expense Cost basis of landfill assets
$
114
$
110
Asset retirement costs
24
17
Total landfill amortization expense
$
138
$
127
Accretion and other related expense
25
24
Landfill amortization, accretion and other related expense
$
163
$
151
(a) The summary of free cash flow has been prepared to
highlight and facilitate understanding of the principal cash flow
elements. Free cash flow is not a measure of financial performance
under generally accepted accounting principles and is not intended
to replace the consolidated statement of cash flows that was
prepared in accordance with generally accepted accounting
principles.
(b) Represents amounts associated with business
acquisitions consummated during the applicable period except where
noted.
WASTE MANAGEMENT, INC. RECONCILIATION OF CERTAIN
NON-GAAP MEASURES (In Millions, Except Per Share
Amounts) (Unaudited)
Three Months EndedMarch 31, 2020 Income from
Operations Pre-tax Income Tax Expense
NetIncome (a) Diluted Per Share Amount As reported
amounts
$
573
$
435
$
74
$
361
$
0.85
Adjustments: Advanced Disposal acquisition-related
costs
28
28
7
21
0.05
Enterprise resource planning system related costs
7
7
2
5
0.01
Impairment of an investment and other
3
10
2
8
0.02
38
45
11
34
0.08
As adjusted amounts
$
611
$
480
$
85
(b)
$
395
$
0.93
Depreciation and amortization
402
As adjusted operating EBITDA
$
1,013
Three Months EndedMarch 31,
2019 Income from Operations Pre-tax Income Tax
Expense NetIncome (a) Diluted Per Share
Amount As reported amounts
$
621
$
462
$
115
$
347
$
0.81
Adjustments: Impairment of an investment and other
-
55
-
55
0.13
As adjusted amounts
$
621
$
517
$
115
(b)
$
402
$
0.94
Depreciation and amortization
366
As adjusted operating EBITDA
$
987
Three Months Ended
March 31, 2020 March 31, 2019 Adjusted SG&A
Expenses and Adjusted SG&A Expenses Margin Amount
As a % of Revenues Amount As a % of
Revenues Operating revenues, as reported
$
3,729
$
3,696
SG&A expenses, as reported
$
425
11.4
%
$
409
11.1
%
Adjustments: Advanced Disposal acquisition-related
costs
(28
)
-
Enterprise resource planning system related costs
(7
)
-
Adjusted SG&A expenses
$
390
10.5
%
$
409
11.1
%
(a) For purposes of this press release table, all references
to "Net income" refer to the financial statement line item "Net
income attributable to Waste Management, Inc."
(b) While the
Company calculates its effective tax rate based on actual dollars,
an approximate effective tax rate can be calculated by dividing the
Tax Expense amount in the table above by the Pre-tax Income amount.
The adjusted effective tax rate was 17.6% and 22.2% for the quarter
ended March 31, 2020 and 2019, respectively.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200506005466/en/
Waste Management
Web site www.wm.com
Analysts Ed Egl 713.265.1656 eegl@wm.com
Media Andy Izquierdo 832.710.5287 aizquierdo@wm.com
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