Waste Management announces 2018 earnings

Waste Management President Jim Fish calls 2018 a “record-setting year.”


Waste Management Inc., Houston, announced the financial results for its quarter ended Dec. 31, 2018. Revenues for the fourth quarter of 2018 were $3.84 billion, compared with $3.65 billion for the same 2017 period. Net income for the quarter was $531 million, or $1.24 per diluted share, compared with net income of $903 million, or $2.06 per diluted share, for the fourth quarter of 2017. On an adjusted basis, earnings per diluted share were $1.13 for the fourth quarter of 2018, compared with 85 cents for the fourth quarter of 2017.

For the full year 2018, the company reported revenues of $14.91 billion, compared with $14.49 billion for 2017. Earnings per diluted share were $4.45 for the full year 2018 compared with $4.41 for the full year 2017. On an adjusted basis, earnings per diluted share were $4.20 for the full year 2018 versus $3.22 for the full year 2017.

Waste Management President and CEO Jim Fish says, “2018 was a record-setting year for Waste Management, driven by our traditional solid waste performance. We grew operating EBITDA by more than 5 percent, which led to an increase in net cash provided by operations of more than 12 percent to $3.57 billion. This growth translated into free cash flow of over $2 billion and the most cash returned to our shareholders in over a decade. Our strong 2018 results validate that our focus on outstanding customer experience and cost management drives solid growth in our business.”

Highlights from Waste Management’s release include:

Profitability

  • Operating EBITDA (earnings before interest, taxes, depreciation and amortization) was $1.14 billion for the fourth quarter of 2018 and $4.27 billion for the full year. Adjusted operating EBITDA was $1.09 billion for the fourth quarter of 2018 and $4.22 billion for the full year. On a year-over-year basis, adjusted operating EBITDA grew $73 million, or 7.2 percent, in the fourth quarter and $210 million, or 5.2 percent, for the year. Adjusted operating EBITDA margin improved 50 basis points in the fourth quarter and 60 basis points for the full year.

Revenue growth

  • In the fourth quarter, revenue growth was driven by strong yield and volume growth in the company’s collection and disposal business, which contributed $203 million of incremental revenue on a year-over-year basis. Revenue from the company’s recycling business increased $18 million in the fourth quarter of 2018. For the full year, yield and volume growth in the company’s collection and disposal business contributed $693 million of incremental revenue. This was partially offset by a decline in revenue from the company’s recycling business, which fell by $197 million year-over-year, due to lower market prices for commodities net of contamination fees.
  • Core price was 5.6 percent in the fourth quarter of 2018, compared with 4.8 percent in the fourth quarter of 2017. For the full year, core price was 5.3 percent, compared with 4.8 percent in 2017.
  • Internal revenue growth from yield for collection and disposal operations was 2.3 percent for both the fourth quarter and the full year, compared with 2.2 percent in the fourth quarter of 2017 and 2 percent for the full year 2017.
  • Traditional solid waste internal revenue growth from volume was 3.1 percent in the fourth quarter of 2018, or 2.4 percent on a workday-adjusted basis. Total company internal revenue growth from volume, which includes recycling and other businesses, was 4.7 percent in the fourth quarter, or 4 percent on a workday-adjusted basis. For the full year 2018, traditional solid waste internal revenue growth from volume was 2.9 percent and total company volume was 3.3 percent.

Recycling

  • Operating EBITDA in the company’s recycling line of business improved modestly when comparing the fourth quarter of 2018 with the prior year period as the company executed on its contamination fee strategy. For the full year, operating EBITDA in the company’s recycling line of business declined nearly $90 million when compared with the full year 2017.

Cost management

  • The company focused on managing selling, general and administrative expenses (SG&A) to reduce costs as a percentage of revenue to below 10 percent for the first time since 2005. As a percent of revenue, SG&A expenses were 9.6 percent in the fourth quarter of 2018, compared with 10.1 percent in the fourth quarter of 2017. For the full year, as a percentage of revenue, SG&A expenses were 9.7 percent, compared with 10.1 percent for the full year 2017.

Free cash flow & capital allocation

  • Net cash provided by operating activities was $912 million in the fourth quarter compared with $792 million in the fourth quarter of 2017. For the full year, net cash provided by operating activities was $3.57 billion, compared with $3.18 billion for the full year of 2017. The increase in operating cash flow for the quarter and the year reflects the benefits of strong operating income growth and lower cash taxes, which were partially offset by the payment of approximately $65 million in bonuses to the company’s front-line employees.
  • Capital expenditures were $454 million in the fourth quarter, compared with $528 million in the fourth quarter of 2017. For the full year, capital expenditures were $1.69 billion, compared with $1.51 billion for the full year of 2017. The year-over-year increase was in line with expectations as the company invested a significant portion of its tax savings in facility improvements, natural gas fueling infrastructure and expanding its natural gas fleet.
  • Free cash flow was $560 million, including $102 million in asset sales, in the fourth quarter, compared with $344 million, including $80 million in asset sales, in the fourth quarter of 2017. For the full year, free cash flow was $2.08 billion, including $208 million in asset sales, compared with $1.77 billion, including $99 million in asset sales, for the full year of 2017.
  • The company returned $451 million to shareholders in the fourth quarter comprised of $197 million in dividends and $254 million in share repurchases. For the full year, the company returned $1.8 billion to shareholders comprised of $802 million in dividends and $1 billion in share repurchases.
  • The company spent $466 million on acquisitions of solid waste businesses during 2018, $118 million of which was spent in the fourth quarter.

Income taxes

  • The company’s effective tax rate for the fourth quarter of 2018 was 19.3 percent. On an adjusted basis, the tax rate was 21.5 percent. For the full year, the company’s effective tax rate was 19 percent. On an adjusted basis, the tax rate was 22.1 percent.

The company announced the following regarding its financial outlook for 2019:

Profitability

  • Adjusted operating EBITDA is expected to grow $185 to $235 million to between $4.40 and $4.45 billion for the full year.
  • Adjusted earnings per diluted share for 2019 is expected to be between $4.28 and $4.38.

Revenue growth

  • Core price is expected to be greater than 4 percent for 2019. Internal revenue growth from yield on the collection and disposal business is expected to be greater than 2 percent.
  • Internal revenue growth from volume is expected to be around 2 percent.

Free cash flow & capital allocation

  • Free cash flow for 2019 is projected to be between $2.025 and $2.075 billion.
  • Capital expenditures are expected to be in the range of $1.65 to $1.75 billion, with proceeds from asset sales projected to be $50 to $100 million.
  • The board of directors has indicated its intention to increase the dividend by $0.19, or 10.2 percent, to $2.05 per share on an annual basis, for an approximate annual cost of $870 million. The board must separately approve and declare each dividend.
  • The board of directors has authorized management to repurchase up to $1.5 billion of the company’s common stock. This authorization is not limited to 2019 and does not expire.

Income taxes

  • The company expects its full-year adjusted effective tax rate to be approximately 24 percent.

“The health of our business is best demonstrated by the strong 2018 operating EBITDA performance generated by our hardworking employees,” Fish says. “We expect equally strong operating EBITDA growth again in 2019. We will continue to make investments in our employees, in technology, and in capital equipment this year to further grow our business, improve customer service, and generate strong returns. We are confident that these investments will position us well for 2019 and into the future.”