Waste Management announces strong third quarter earnings
Waste Management, Inc. has announced financial results for the quarter ended September 30, 2020, citing a strong third quarter, with adjusted operating EBITDA results in line with record performance in 2019, and an expanded adjusted operating EBITDA margin of 70 basis points.
"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 Chief Executive Officer. "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.
"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."
Given the strength of the Company's third quarter, which demonstrated the resilience of the business model and strong execution on reducing the cost to serve, the Company expects to exceed its 2020 adjusted operating EBITDA margin guidance of 28.0% to 28.5% and generate free cash flow in excess of $2 billion.
KEY HIGHLIGHTS FOR THE THIRD QUARTER OF 2020
- In the third quarter of 2020, 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 Company volumes declined 5.0% 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.
- Operating expenses as a percentage of revenue improved 110 basis points to 60.4% when compared to the third quarter of 2019. The improvement was primarily driven by the Company's proactive management of costs, which reduced overtime hours and maintenance expenses. In addition, the Company's continued strategic focus on increasing the compressed natural gas composition of its fleet, combined with lower market prices for diesel fuel, resulted in lower operating costs and improved margins.
- SG&A expenses were 10.8% of revenue in the third quarter of 2020 compared to 9.7% in the third quarter of 2019. On an adjusted basis, SG&A expenses were 10.1% of revenue in the third quarter of 2020 compared to 9.7% in the third quarter of 2019.(a) The increase in SG&A expenses as a percent of revenue is primarily related to the decline in revenue as well as additional incentive compensation costs and the Company's intentional accelerated spending on technology.
- Total Company operating EBITDA was $1.10 billion, or 28.5% of revenue, for the third quarter of 2020. On an adjusted basis, total Company 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, for the third quarter of 2019.
Free Cash Flow & Capital Allocation
- In the third quarter of 2020, net cash provided by operating activities was $1.03 billion compared to $952 million in the third quarter of 2019, an increase of $77 million, or 8.1%.
- In the third quarter of 2020, capital expenditures were $343 million compared to $483 million in the third quarter of 2019.
- In the third quarter of 2020, free cash flow was $691 million compared to $478 million in the third quarter of 2019.(a)
- The Company paid $230 million of dividends to shareholders.
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."
Traditionally, waste management companies have operated using a simple "management of waste" approach to operating a MRF. Throughput targets and continuous operation (minimal downtime) were the main driving forces. The industry has changed however, and the focus moving forward is now on optimizing system performance and reliability, in conjunction with increasing recycling rates and a drive for a "greener" and more sustainable tomorrow.
When considering the addition of, or upgrade to, an "intelligent" MRF, for municipalities or private operators, the main factors should always be the client's (operator) current requirements, and evolving market needs, which include throughput, reliability, output quality, and adaptability. Equally important is a full understanding of what is really expected from any proposed system. Having an engaged and focused mindset for the project with the client from the beginning, will impact and drive the entire design process. This then impacts the overall project result, through to the productive, efficient, ongoing operation of the facility itself.