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Key Takeaways from Waste Management's Q4 2015 Results

Houston-based Waste Management reported its fourth quarter and annual results, which were in line with the general themes facing the waste and recycling sector. The company reported volume and pricing growth, but experienced headwinds in recycling. It anticipates those patterns to continue in 2016.  

“In 2015, saw the execution of pricing, productivity and growth strategies in a way that will lead to continued growth in 2016 and beyond,” Waste Management President & CEO David Steiner said during a conference call with investors this morning.

For the full year 2015 Wastement reported revenues of $13 billion, compared with $14 billion for 2014. Earnings per diluted share were $1.65 for the full year 2015 compared with $2.79 for the full year 2014. On an as-adjusted basis, earnings per diluted share were $2.61 for the full-year 2015 versus $2.30 for the full-year 2014.

During the earnings call, Steiner was asked about how the pending Waste Connections / Progressive Waste merger might affect Waste Management. Steiner complemented Waste Connections on the deal and categorized them as a “strong” and “fair” competitor. He also said Waste Management would consider opportunities for tuck-in acquisitions in markets where Waste Connections might need to divest in some assets as a result of the merger.

In terms of recycling, Steiner said the company had “made significant progress” on operating expenses and in renegotiating contracts in some places. Overall, it reduced recycling operating expenses by 15 percent.

Steiner also shined a light on commodity prices, remarking that recyclables materials commodity prices are down $20 per ton from January 2015 and are at the lowest levels since 2009.

Here are some key highlights from the company’s results:

  • Revenues for the fourth quarter of 2015 were $3.25 billion compared with $3.44 billion for the same 2014 period. Net income for the quarter was $273 million, or $0.61 per diluted share, compared with net income of $590 million, or $1.28 per diluted share, for the fourth quarter of 2014.
  • In the fourth quarter, the Company saw a $50 million increase in internal revenue growth from its traditional solid waste business and a $59 million increase in revenues from acquisitions. However, overall revenue declined by 5.6 percent, or $191 million. That revenue decline stemmed from a $163 million decline from divestitures, $43 million in lower fuel surcharge revenues, $34 million in lower recycling revenues, and $33 million in foreign currency fluctuations. For the full year, the company saw a $157 million increase in internal revenue growth from its traditional solid waste business and a $174 million increase in revenues from acquisitions. These increases were offset by a $762 million decline from divestitures, $211 million in lower recycling revenues, $171 million in lower fuel surcharge revenues, and $126 million in foreign currency fluctuations.
  • Core price, which consists of price increases and fees, other than the company’s fuel surcharge, net of rollbacks, was 4.2 percent for both the fourth quarter and full year of 2015.) Internal revenue growth from yield for collection and disposal operations was 1.7 percent in the quarter and 1.8 percent for the full year.
  • Traditional solid waste business internal revenue growth from volume was slightly positive in the fourth quarter of 2015, an improvement of 60 basis points versus the fourth quarter of 2014. Total Company internal revenue growth from volume declined 0.9 percent in the fourth quarter, an improvement from a negative 1.4 percent in the third quarter of 2015. Total company volume declined 1.6 percent for the full year 2015.
  • Average recycling commodity prices were approximately 18.6 percent lower in the fourth quarter of 2015 compared with the prior year period. Recycling volumes declined 1.6 percent in the fourth quarter. Despite these declines, earnings per diluted share from the company’s recycling operations were flat when compared to the prior year period as a result of operational improvements in the company’s recycling business. For the full year, average recycling commodity prices were approximately 17.5 percent lower and volumes declined 5.5 percent, driving a $0.04 decline in the company’s earnings per diluted share from recycling operations.
  • Operating expenses improved by $143 million in the fourth quarter of 2015 compared to the prior year period. Excluding divestitures, operating expenses improved $50 million. Lower fuel, lower commodity rebates, and continued route optimization drove the improvement. As a percent of revenue, operating expenses were 62.4 percent in the fourth quarter of 2015, as compared to 63.2 percent in the fourth quarter of 2014. For the full year, operating expenses improved by $771 million compared to the prior year period. On an adjusted basis, and excluding divestitures, operating expenses improved $328 million.
  • Free cash flow was $188 million in the fourth quarter of 2015, which included a prepayment of $150 million for 2016 cash taxes. The company had $31 million of pre-tax divestiture proceeds in the quarter. Free cash flow for the full year was $1.41 billion.
  • The company paid dividends of $172 million to shareholders in the fourth quarter. For the full year, the company returned almost $1.3 billion to shareholders through $695 million in dividends and $600 million in share repurchases.
  • For 2016, Waste Management said recently completed acquisitions and tuck-in acquisitions expected to close in 2016 are estimated to generate between $50 and $75 million of operating EBITDA. Total operating EBITDA is expected to be approximately $3.6 billion for the full year, a 5 percent increase from 2015.
  • Free cash flow for 2016 is projected to be between $1.5 and $1.6 billion.
  • Core price is expected to be approximately 4.0 percent for 2016. Internal revenue growth from yield on the collection and disposal business is expected to be between 1.5 percent and 2.0 percent.
  • Internal revenue growth from volume in the company’s traditional solid waste business is expected to be positive in 2016. However, Waste Management does not expect a recovery in lower margin recycling or non-solid waste volumes. Consequently, the company anticipates overall volumes to be about flat; with volumes in the first half of the year being slightly negative, and volumes turning positive in the second half of the year.
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