Key Takeaways from Waste Management's Strong Q3 2016 Revenue Growth

Key Takeaways from Waste Management's Strong Q3 2016 Revenue Growth

The revenue increase was driven by positive yield and volume.

Waste Management Inc. announced financial results for its quarter ended September 30, which included a 5.6 percent increase in revenue—its strongest mark in some time.

That result was driven by strong growth in both core price (4.7 percent) and volumes (up 1.6 percent). Overall, the combined positive price, volume growth and cost management drove increases in adjusted operating income, adjusted operating EBITDA and margins when compared to the third quarter of 2015.

In all, revenues for the third quarter of 2016 were $3.55 billion compared with $3.36 billion for the same 2015 period. Net income for the quarter was $302 million, or $0.68 per diluted share, compared with net income of $335 million, or $0.74 per diluted share, for the third quarter of 2015.

“Our focus on improving core price, growing high margin volumes, and containing costs continued our strong performance from the first half of 2016, as we again exceeded our revenue, earnings, and margin targets.,” Waste Management CEO David P. Steiner said in a statement. “In 2016, we have seen three consecutive quarters of strong price, positive volume, and better than expected earnings performance.”

During a call with investors, Waste Management executives provided additional commentary.

Here are some key takeaways:

  • The revenue increase was driven by positive yield and volume in Waste Management’s collection and disposal business of $110 million.
  • Acquisitions, net of divestitures, contributed $60 million of revenue growth to the current quarter. Recycling yield and volume also increased $27 million. These increases were partially offset by $11 million in lower fuel surcharge revenue. The impact of foreign currency was immaterial in the third quarter.
  • Core price, which consists of price increases net of rollbacks and fees, other than the Company’s fuel surcharge, was 7 percent, up from 4.0 percent in the third quarter of 2015. Core price in its industrial line was 8.6 percent, in the commercial line it was 7 percent and in both its landfill and residential lines was 2.6.
  • The company’s churn rate, i.e., turnover in customers, dropped to 8.7 percent. “That’s 170 basis points better than last year and 40 basis points better than the second quarter of 2016, this is the lowest churn that we've seen since before 2015,” Steiner said during the call.
  • The company is still dealing with managing liquids in landfills. It posted an increase in leachate cost of about $23 million.
  • Internal revenue growth from yield for collection and disposal operations was 1 percent.
  • Traditional solid waste business internal revenue growth from volume was a positive 6 percent in the third quarter of 2016, an increase of 80 basis points from the second quarter of 2016, and 170 basis points from the third quarter of 2015. Total company internal revenue growth from volume was also a positive 1.6 percent in the third quarter of 2016, an increase of 120 basis points from the second quarter of 2016, and 300 basis points from the third quarter of 2015.
  • Average recycling commodity prices at the Company’s recycling facilities increased 13.6 percent in the third quarter of 2016 from the prior year period. Recycling volumes improved 0.9 percent in the third quarter. “On the operational side, our recycling employees have done a nice job on improving operational efficiencies, such as reducing downtime events through preventative maintenance practices, educating customers about contamination and charging for contamination all ridges,” Steiner said during the call.
  • Operating expenses were 62.5 percent of revenues in the third quarter of 2016, as compared to 62.4 percent in the third quarter of 2015, driven primarily by increased leachate disposal costs.
  • Net cash provided by operating activities was $753 million, compared to $657 million in the third quarter of 2015.
  • Capital expenditures for the quarter were $333 million, compared to $335 million in the third quarter of 2015.
  • Free cash flow was $428 million in the third quarter of 2016 as compared to $358 million in the third quarter of 2015.
  • The company raised its adjusted diluted earnings per share guidance for 2016. It is expecting adjusted earnings per diluted share of at least $2.91, which is a more than 5 percent increase from the mid-point of its initial 2016 guidance.
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