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WM Beats Q3 Estimates—Optimistic on EBITDA Margin Guidance
4 Min Read
WM
Waste Management (WM) announced Q3 2020 results and continues the upbeat trend in the industry. WM generated more than $1 billion of net cash from operating activities and strong operating EBITDA margin.
“We’ve consistently pointed to operating EBITDA as the best measure of the health of our business, and despite the challenging backdrop, we delivered third quarter adjusted operating EBITDA results in line with last year’s record performance and expanded adjusted operating EBITDA margin by 70 basis points,” said Jim Fish, Waste Management’s president and CEO. “This is a testament both to our team’s ability to optimize our business in the new environment as well as the progress of economic recovery in North America."
WM expects to exceed its 2020 adjusted operating EBITDA margin guidance of 28% to 28.5% and generate free cash flow in excess of $2 billion.
Based on WM’s earnings call today, the Advanced Disposal integration is going well and the management team is confident that the acquisition will provide long-term value.
Q3 Highlights
Revenue
Revenue declined $99 million in the Company’s collection and disposal business compared to the third quarter of 2019, driven by $192 million in volume declines partially offset by $93 million of growth from yield.
Core price for the third quarter of 2020 was 3.2% compared to 4.0% in the third quarter of 2019 and 1.3% in the second quarter of 2020.
Collection and disposal yield was 2.6% in both the third quarter of 2020 and the third quarter of 2019 compared to 1.6% in the second quarter 2020.
Total volumes declined 5% in the third quarter of 2020, or 5.1% on a workday adjusted basis, compared to growth of 1.9% on a workday adjusted basis in the third quarter of 2019 and a decline of 10.3% in the second quarter of 2020.
Cost Management
Operating expenses as a percentage of revenue improved 110 basis points to 60.4% when compared to the third quarter of 2019.
SG&A expenses were 10.8% of revenue in the third quarter of 2020 compared to 9.7% in the third quarter of 2019.
Profitability
Total operating EBITDA was $1.10 billion, or 28.5% of revenue. On an adjusted basis, total operating EBITDA was $1.14 billion, or 29.5% of revenue, for the third quarter of 2020 compared to adjusted operating EBITDA of $1.14 billion and 28.8% of revenue for the same period in 2019.
Operating EBITDA in the company’s collection and disposal business, adjusted on the same basis as total Company operating EBITDA, was $1.27 billion, or 31.2% of revenue, for the third quarter of 2020, compared to $1.30 billion, or 30.9% of revenue.
Free Cash Flow & Capital Allocation
Net cash provided by operating activities was $1.03 billion compared to $952 million in the third quarter of 2019, up $77 million, or 8.1%.
Capital expenditures were $343 million compared to $483 million.
Free cash flow was $691 million compared to $478 million YOY.
WM paid $230 million of dividends to shareholders.
Sustainability Is Top of Mind
Fish noted that 70% of their fleets are running on CNG and that some of the noted efficiencies gained and maintenance cost cuts achieved could likely be attributed to these vehicles. WM is researching electric fleets, but they do not plan to abandon their CNG plans. The company is pleased with their CNG conversion results.
“In addition to our strong quarterly results, we are also proud to have published our 2020 Sustainability Report last month. Titled ‘Building Value Together,’ the report describes how we are addressing challenges and opportunities related to the environment, social issues and governance, and doing so in close partnership with our customers, suppliers and communities. Amidst the crises of 2020, we remained steadfast to our commitments of putting people first, advocating for inclusion and diversity, protecting the environment, and contributing to a circular economy.”
When asked if there would be capital creep from WM’s sustainability initiatives, the management team said that no, any investments would be built into the business since they have been focused on sustainability for 10 years. It is not a new undertaking for the company.
The Election and the Future
When asked about the potential changes ahead due to the election. Devina Rankin, CFO, noted that if a Biden election occurs, the federal tax rate would likely increase from 21% to 28%. She said it was hard to predict anything beyond that.
Jim Fish added that any additional environmental regulation would likely benefit the company since the company holds itself to a very high standard.
Fish concluded, “We have taken to heart lessons learned during this pandemic such that we will emerge a stronger, more differentiated company. We’ve learned that we can operate our business with a lower cost structure, and we are holding on to operating efficiencies and cost savings as our volumes recover. Our customer service digitalization investments are unquestionably the right approach, and we have accelerated these efforts to reap the benefits sooner. With further contributions from the acquisition of Advanced Disposal that closed last week and our progress in transforming the recycling business, we are well-positioned for a strong finish to the year with positive momentum heading into 2021.”
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