WM's third quarter earnings show impact of decrease in market prices for single-stream recycled commodities
WM has announced financial results for the quarter ended September 30, 2023.
"Over the course of the year, our team has consistently delivered strong results driven by our focus on pricing discipline and optimization of our cost structure," said Jim Fish, WM's President and Chief Executive Officer. "In the third quarter, organic growth in our collection and disposal business, operating cost improvements, and our commitment to SG&A cost management translated into more than 6 percent growth in adjusted operating EBITDA and 100 basis points of adjusted operating EBITDA margin expansion."
Highlights for the third quarter of 2023
- Core price for the third quarter of 2023 was 6.6 percent compared to 8.2 percent in the third quarter of 2022. Core price exceeded inflationary cost increases in the quarter by an estimated 100 basis points, contributing to margin and earnings growth.
- Collection and disposal yield was 5.0 percent in the third quarter of 2023 compared to 7.1 percent in the third quarter of 2022.
- On a workday adjusted basis, total company volumes increased 1.0 percent and collection and disposal volumes increased 0.7 percent in the third quarter of 2023. On a reported basis, total company volumes increased 0.5 percent and collection and disposal volumes increased 0.3 percent in the third quarter of 2023 compared to 1.0 percent and 1.4 percent, respectively, in the third quarter of 2022.
- Operating expenses as a percentage of revenue were 61.3 percent in the third quarter of 2023 compared to 62.2 percent in the third quarter of 2022.
- SG&A expenses were 9.0 percent of revenue in the third quarter of 2023 compared to 9.3 percent in the third quarter of 2022. SG&A expenses as a percentage of revenue improved 20 basis points in the third quarter of 2023 from 9.2 percent, on an adjusted basis, in the third quarter of 2022.
- Operating EBITDA in the company's collection and disposal business, adjusted on the same basis as total company operating EBITDA, increased by approximately $105 million to $1.70 billion for the third quarter of 2023. Operating EBITDA as a percentage of revenue in the company's collection and disposal business was 32.6 percent for the third quarter of 2023 compared to 31.9 percent for the third quarter of 2022.
- Operating EBITDA in the company's recycling line of business declined by $10 million compared to the third quarter of 2022, which was in line with the company's expectations. The decline was driven by the approximately 40 percent decrease in market prices for single-stream recycled commodities. WM's automated facilities continue to see strong improvements in product quality, throughput, and labour costs, which are mitigating the commodity price pressure on earnings.
- Operating EBITDA in the company's renewable energy business declined by $13 million compared to the third quarter of 2022, which was in line with expectations and primarily driven by decreases in the value of energy prices and renewable fuel standard credits.
Free cash flow and capital allocation
- Cash flow from operations increased 6.9 percent in the third quarter of 2023, driven by strong operating EBITDA growth.
- During the third quarter of 2023, $653 million was returned to shareholders, including $283 million of cash dividends and $370 million of share repurchases.
- The company continues to advance its sustainability growth investments in both the renewable energy and recycling businesses, and management continues to expect that the previously announced investments will deliver approximately $740 million in incremental annual adjusted operating EBITDA contributions beginning in 2026, with approximately $500 million coming from renewable energy investments and approximately $240 million coming from recycling investments.
- In the third quarter, technology and automation upgrades were completed at two of WM's recycling facilities, and another two automation projects and a new market facility are expected to be in service by the end of the year. Additionally, the company expects to have its seventh renewable natural gas facility, the third in its growth program, in service in January.
- The company now expects sustainability growth capital spending of about $750 million in 2023. The decrease from prior expectations is based on a shift in the timing of spending across the next few quarters. As a result of lower anticipated capital spending, 2023 free cash flow is expected to be in the range of $1.825 and $1.925 billion.
- WM released its 2023 Sustainability Report during the third quarter, providing details about the company's sustainability ambitions, strategy, and progress toward its goals.
"We are pleased with our results in the initial three quarters of the year across all key financial metrics giving us confidence in our ability to deliver on the guidance we communicated in July. Our team remains focused on continuing to drive operating leverage in the business to deliver a strong finish to this year and lay the groundwork for further growth in 2024," Fish concluded.