Waste Management Reports Financials, Divestment Plans

The company’s revenues for the quarter were $3.29 billion, an increase of 4.8 percent from the $3.14 billion reported for last year’s second quarter. WM reported net income of $527 million for the quarter, or 92 cents per diluted share. Net income for the second quarter of the previous year was $216 million, or 37 cents per diluted share.

A net after-tax benefit of $311 million from tax audit settlements helped to offset the company’s higher tax expenses resulting from a plan to repatriate accumulated earning and capital from Canadian subsidiaries under the Jobs Creation Act of 2004, according to WM. The company also gained $21 million for the sale of operations in Alaska, North Carolina and Georgia, helping to further boost after-tax earnings.

“We saw the continuation of a number of encouraging trends during the second quarter,” David P. Steiner, CEO of Waste Management, says. Strong pricing was again a driver of our financial results, as our internal revenue growth on base business due to yield reached 2.1 percent for the second consecutive quarter.” He adds, “We continued to make progress in our labor productivity, in our collection fleet maintenance programs and in our safety and risk management costs. As of July 1, we have also implemented a redesigned fuel surcharge program to capture the full impact that fuel prices have on our business. While our previous fuel surcharge program has historically recovered a large percentage of our increased direct fuel costs, it did not recoup the substantial indirect fuel-related cost increases paid to our subcontract haulers. We expect that our new fuel surcharge program will recover increases in subcontractor costs related to higher fuel prices.”

WM also announced its plan to divest under-performing or non-strategic operations. Operations identified for divestiture represent more than $400 million in annual revenue. These operations consist primarily of collection businesses and transfer stations, which generated approximately $215 million in gross revenue and $11 million in operating income for the first six months of 2005.

“Improving the quality of our assets has been one of my top priorities,” Steiner says. “We have been studying our under-performing business operations with the objective to either fix or sell them. Our extensive reviews have been based on a number of financial and operational criteria and on how operating units fit into our strategic business model. This step is consistent with our plans to increase our internalization rates and improve our operating margins. We will also be looking for opportunities to reinvest the divestiture proceeds to grow our business in areas with higher margins.”

Waste Management also discussed plans to simplify its organizational structure to increase the accountability of its market areas, to streamline business decisions and to reduce costs at its group and corporate offices. The new organizational structure will place more emphasis on the day-to-day decision-making that occurs at its market areas, which encompass major metropolitan or geographical regions across the country. The company has also eliminated its Canadian Group office, reducing its number of operating groups from seven to six.

The reorganization will eliminate about 600 positions. WM expects it will have to take a third quarter pre-tax restructuring charge to earnings in the range of $20 million to $30 million. The company estimates that the workforce reduction and related cost savings, before the restructuring charge, will create pre-tax savings of $30 million in 2005 and $70 million annually beginning in 2006.