Financial report: Collection and disposal segment helps drive growth for WM in 2022

WM has released its financial results for the quarter and year that ended December 31, 2022.

"In 2022 WM delivered another year of strong financial growth, particularly in our collection and disposal business," says Jim Fish, WM's president and chief executive officer. "The collection and disposal business exceeded expectations and overcame high inflation and a tight labour market to deliver double-digit adjusted operating EBITDA growth in both the fourth quarter and for the full year. This translated into total company adjusted operating EBITDA growth of 8.8 percent in the fourth quarter and more than 9.5 percent growth for the full year. Throughout the year, we also advanced our strategic priorities – enhancing employee engagement, improving our operations through the use of technology, and investing in sustainability leadership and growth.

"We expect 2023 performance to be driven by another strong year in our collection and disposal business that builds upon our outstanding 2022 results. This robust performance is expected to generate total company-adjusted operating EBITDA growth of 7 percent at the midpoint of our guidance, which is at the upper end of our long-term operating EBITDA growth expectations. At the same time, we continue to invest in automation technology to further differentiate WM's service offerings and drive future performance, and we continue to make large investments to grow our sustainability businesses. Today, we published additional information about our multi-year plan for significant investments in our renewable energy and recycling businesses in a supplemental presentation on our website including announcing that we will be hosting a virtual information session for investors on April 5 to provide more insight into these growth plans."

Highlights of WM's fourth quarter and 2022 full year

Revenue

• The core price for the fourth quarter of 2022 was 8.1 percent compared to 5.1 percent in the fourth quarter of 2021. For the full year, the core price was 7.8 percent in 2022 compared to 4.8 percent in 2021.
• Collection and disposal yield was 7.7 percent in the fourth quarter of 2022 compared to 3.7 percent in the fourth quarter of 2021. For the full year, the collection and disposal yield was 6.7 percent in 2022 compared to 3.5 percent in 2021.
• Total company volumes decreased 0.7 percent in the fourth quarter of 2022, or a decline of 0.4 percent on a workday-adjusted basis, compared to an increase of 2.8 percent in the fourth quarter of 2021, or 2.3 percent on a workday-adjusted basis. For the full year, total company volumes increased by 1.3 percent in 2022 compared to 2.8 percent in 2021. There were negligible workday differences for the full year.
• Collection and disposal volumes decreased by 0.5 percent in the fourth quarter of 2022, or a decline of 0.3 percent on a workday-adjusted basis, compared to an increase of 3.2 percent in the fourth quarter of 2021, or 2.8 percent on a workday-adjusted basis. For the full year, collection and disposal volumes increased by 1.8 percent in 2022 compared to 3.0 percent in 2021. There were negligible workday differences for the full year.

Cost management

• Operating expenses as a percentage of revenue were 62.7 percent in the fourth quarter of 2022 compared to 63.2 percent, or 63.0 percent on an adjusted basis, in the fourth quarter of 2021. The improvement in this measure was driven by the collection and disposal business where pricing and operating efficiencies worked to overcome inflationary cost pressures. An estimated 100 basis point improvement from collection and disposal operations was partially offset by a 40 basis point impact from higher fuel prices and a 30 basis point impact from Waste Management's recycling business. For the full year, operating expenses as a percentage of revenue were 62.4 percent in 2022 compared to 62.0 percent, or 61.9 percent on an adjusted basis, in 2021.
• SG&A expenses were 9.9 percent of revenue, or 9.8 percent on an adjusted basis, in the fourth quarter of 2022 compared to 10.5 percent, or 10.3 percent on an adjusted basis, in the fourth quarter of 2021. For the full year, SG&A expenses were 9.8 percent of revenue, or 9.6 percent on an adjusted basis, in 2022 compared to 10.4 percent, or 10.0 percent on an adjusted basis, in 2021.

Profitability

• Total company adjusted operating EBITDA was $1.36 billion, or 27.5 percent of revenue, for the fourth quarter of 2022, compared to $1.25 billion, or 26.7 percent of revenue for the fourth quarter of 2021. For the full year 2022, operating EBITDA was $5.51 billion, or 28.0 percent of revenue, compared to $5.03 billion, or 28.1 percent of revenue for the full year 2021.
• Operating EBITDA in the company's collection and disposal business, adjusted on the same basis as a total company operating EBITDA, was $1.55 billion, or 31.2 percent of revenue, for the fourth quarter of 2022, compared to $1.39 billion, or 30.8 percent of revenue, for the fourth quarter of 2021. For the full year 2022, operating EBITDA in the company's collection and disposal business, adjusted on the same basis as the total company operating EBITDA, was $6.07 billion, or 31.4 percent of revenue, compared to $5.52 billion, or 31.6 percent of revenue for the full year 2021.
• In the fourth quarter of 2022, the operating EBITDA in WM's recycling business decreased by $51 million compared to the fourth quarter of 2021. For the full year, operating EBITDA in the company's recycling business decreased by $59 million compared to 2021. The decline in both periods was primarily driven by a sharp decline in market prices for recycled commodities in the fourth quarter and persistent inflationary pressures on operating costs, particularly for labour at non-automated facilities, throughout the year.
• In the fourth quarter of 2022, the operating EBITDA in the company's renewable energy business declined by $5 million compared to the fourth quarter of 2021. For the full year, operating EBITDA in the company's renewable energy line of business increased by $19 million compared to 2021 driven by improved pricing for electricity and renewable natural gas.
• During the fourth quarter of 2022, $705 million was returned to shareholders, including $439 million of share repurchases and $266 million of cash dividends. For the full year 2022, $2.58 billion was returned to shareholders, including $1.5 billion of share repurchases and $1.08 billion of cash dividends. 

WM's 2023 outlook

Revenue growth and profitability

• Waste Management's total company revenue is expected to grow between 4 percent and 5.5 percent, which includes organic revenue growth from the collection and disposal business, excluding fuel, of approximately 5.5 percent. The company's disciplined pricing programs are expected to result in a core price of between 6.5 percent and 7.0 percent and a collection and disposal yield approaching 5.5 percent. Collection and disposal volume is expected to be flat in 2022.
• Total company-adjusted operating EBITDA is expected to be in the range of $5.825 to $5.975 billion for the full year, compared to $5.512 billion in 2022, which is an increase of about $390 million at the midpoint of the range.
• Adjusted operating EBITDA in the company's recycling business is expected to decline to approximately $50 million when compared to the full year 2022. An expected decline in recycled commodity prices is the primary driver of the decrease in operating EBITDA.
• Adjusted operating EBITDA in the company's renewable energy business is expected to decline to approximately $50 million when compared to the full year 2022. An expected decline in market prices for electricity and renewable fuel standard credits are the primary drivers of the decrease in operating EBITDA.

Free cash flow and capital allocation

• WM expects to spend in the range of $2.0 to $2.1 billion on capital expenditures to support its normal business activities.
• As outlined in today's supplemental presentation, WM intends to invest approximately $980 million for capital expenditures on high-return growth projects in its recycling and renewable energy businesses. Additionally, the company expects to invest about $125 million of capital expenditures to develop infrastructure to grow its plastic film recycling business.
• Free cash flow before these targeted sustainability and automation-focused capital investments is projected to be between $2.6 and $2.7 billion. Free cash flow is projected to be between $1.5 and $1.6 billion including the sustainability growth investments.
• The Board of Directors has indicated its intention to increase the annual dividend by $0.20 per share to $2.80, increasing the estimated annual dividends paid to shareholders to $1.1 billion. This will be the 20th consecutive year of increases in the company's per-share dividend. The Board of Directors must separately approve and declare each dividend.
• In December 2022, the Board of Directors refreshed the company's share repurchase authorization, providing for the repurchase of up to $1.5 billion of the company's common stock, signalling confidence in the company's cash flow outlook and financial position.

"Our 2022 results established a strong foundation for continued growth in 2023. We expect operational efficiencies and management of discretionary costs, combined with our revenue growth, to deliver 40 to 80 basis points of adjusted operating EBITDA margin expansion in 2023," Fish continues. "Our operating EBITDA growth is again expected to generate significant cash from operations, positioning us to step up our level of investment in sustainability growth opportunities while continuing to return cash to our shareholders through our recently announced 7.7 percent increase in the planned dividend rate for the year ahead and refreshed share repurchase authorization."