WM revenue grows despite lower pricing for commodities in its recycling business

WM has released financial results for the quarter and year that ended December 31, 2023. 

"Our operating and financial results in the second half of 2023 surpassed expectations driven by strong execution on our pricing and operating excellence programs. Our team continues to make progress in optimizing our cost structure, and our investments in people, technology, and assets accelerated margin expansion ahead of plan in the fourth quarter," said Jim Fish, WM's president and CEO. "During the fourth quarter, our collection and disposal business performance powered our total company adjusted operating EBITDA growth of 15 percent and record adjusted margin of 29.9 percent. Our performance in 2023, particularly the momentum built during the second half of the year, positions us well to sustain growth throughout 2024.

"In 2024, we anticipate our financial performance to be driven by disciplined pricing, enhanced operational efficiencies, prudent cost management, and contributions from our investments in our recycling and renewable energy businesses. We anticipate total company-adjusted operating EBITDA growth of almost 8 percent at the midpoint of our guidance. Our expectations for operating EBITDA growth position us to achieve all of our capital allocation priorities, including continuing to invest in sustainability growth, completing accretive acquisitions, and returning cash to our shareholders through dividends and share repurchases."

The company also plans to invest $2.8 to $2.9 billion in recycling and renewable energy growth between 2022 to 2026. This includes the $1.325 billion already invested in 2022 and 2023. About $350 million of the increased amount is for new recycling projects with similar expected returns.

Highlights of WM's fourth quarter of 2023

• Total company revenue grew 5.7 percent, driven primarily by a core price of 7.3 percent.
• Collection and disposal yield was 4.9 percent, and collection and disposal volumes increased 1.1 percent, or 1.9 percent on a workday-adjusted basis.
• Operating expenses as a percentage of revenue improved 240 basis points to 60.3 percent driven by efficiencies in the collection and disposal business.
• SG&A expenses were 9.8 percent of revenue compared to 9.9 percent, or 9.8 percent on an adjusted basis, in the fourth quarter of 2022.
• Total company adjusted operating EBITDA grew 14.7 percent to $1.56 billion, and margin expanded 240 basis points to 29.9 percent on an adjusted basis.
• Operating EBITDA in the Collection and Disposal business grew $250 million, or $205 million on an adjusted basis, to $1.77 billion. Operating EBITDA margin expanded 360 basis points, or 260 basis points on an adjusted basis, to 37.0 percent.
• The company returned $593 million to shareholders, including $312 million of share repurchases and $281 million of cash dividends.

WM's financial result highlights for the full year of 2023

• Total company revenue grew 3.7 percent, driven primarily by a core price of 7.0 percent. Revenue growth from core price and volume finished the year ahead of expectations. This strong result was partially offset by the impact of lower commodity prices, which negatively impacted revenue from energy surcharges, recycling sales, and our renewable energy business.
• Collection and disposal yield was 5.4 percent, and collection and disposal volumes increased 0.7 percent, or 0.9 percent on a workday-adjusted basis.
• Operating expenses as a percentage of revenue improved 70 basis points to 61.7 percent driven by efficiencies in the collection and disposal business.
• SG&A expenses were 9.4 percent of revenue compared to 9.8 percent, or 9.6 percent on an adjusted basis, in 2022.
• Total company adjusted operating EBITDA grew 7.0 percent to $5.90 billion, and margin expanded 90 basis points to 28.9 percent on an adjusted basis.
• Operating EBITDA in the Collection and Disposal business grew $457 million to $6.63 billion. Adjusted operating EBITDA in the Collection and Disposal business grew $422 million to $6.64 billion. Operating EBITDA margin expanded 50 basis points, or 30 basis points on an adjusted basis, to 35.2 percent.
• Net cash provided by operating activities increased 4.0 percent to $4.72 billion, and free cash flow before investments in high-return sustainability projects grew 5.1 percent to $2.67 billion. Total company free cash flow, including investments in sustainability projects, declined 3.7 percent to $1.90 billion.
• The company returned $2.44 billion to shareholders, including $1.30 billion of share repurchases and $1.14 billion of cash dividends.

WM's 2024 outlook

Revenue growth and profitability

• Total company revenue is expected to grow between 6 percent and 7 percent. The company's disciplined pricing programs are expected to result in a core price of between 6 percent and 6.5 percent and collection and disposal yield approaching 5 percent. Collection and disposal volume growth is expected to approach 1 percent.
• Total company adjusted operating EBITDA is expected to be in the range of $6.275 to $6.425 billion, an increase of about $450 million at the midpoint of the range, which includes about $115 million of adjusted operating EBITDA growth from sustainability growth investments.
• Adjusted operating EBITDA margin is expected to be in the range of 29.0 percent and 29.4 percent, expanding 30 basis points at the midpoint of the range.

Free cash flow and capital allocation

• WM expects to spend in the range of $2.2 to $2.3 billion on capital expenditures to support its normal business activities.
• WM intends to invest between $850 and $900 million for capital expenditures on high-return growth projects in its recycling and renewable energy businesses.
• Free cash flow before these targeted sustainability and automation-focused capital investments is projected to be between $2.75 and $2.95 billion. Free cash flow is projected to be between $1.90 and $2.05 billion including the sustainability growth investments.
• WM's cash flow outlook and strong balance sheet position the company to continue its commitment to sound capital allocation.
  • The company plans to invest $100 to $200 million in solid waste acquisitions.
  • The Board of Directors has indicated its intention to increase the annual dividend by $0.20 per share to $3.00, increasing the estimated annual dividends paid to shareholders to $1.2 billion. This will be the 21st consecutive year of increases in the company's per share dividend. Each individual future quarterly dividend will be declared at the discretion of the Board of Directors prior to payment.
  • In December 2023, 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. WM expects to repurchase $1 billion of its common stock in 2024.

Sustainability growth outlook

• WM has progressed its sustainability growth portfolio and remains committed to investing in an industry-leading network of renewable natural gas projects and recycling assets. The renewable natural gas projects have a projected payback period of about three years and the recycling assets have a projected payback period of about six years. These anticipated returns reflect the company's views that these investments create strong economic value, in addition to underlying environmental value.
• The company has updated the outlook for its sustainability growth program to reflect the addition of new high-return recycling growth opportunities, refined project schedules, and impacts from inflation.
• The company expects to invest $2.8 to $2.9 billion in growth investments across the recycling and renewable energy platforms from 2022 to 2026, which includes the $1.325 billion already invested in 2022 and 2023. About $350 million of the increase from the company's prior plan is for new recycling growth projects that are expected to deliver similar returns.
• The projects are expected to contribute incremental run-rate adjusted operating EBITDA of about $800 million by the end of 2026, with about $510 million coming from renewable natural gas projects assuming a blended average renewable natural gas price of $26 per MMBtu and about $290 million coming from recycling projects assuming a blended average recycled commodity price of $125 per ton.

Following the request of stockholders, the company previously announced that it engaged a team led by former U.S. Attorney General Loretta Lynch at Paul, Weiss, Rifkind, Wharton & Garrison to perform an independent assessment of the impact of the company's policies and practices on the civil rights of company stakeholders and to provide recommendations for further improvement.

"We are pleased with the positive findings of the civil rights assessment, which reported that WM's work to date reflects a substantial and enduring commitment to creating a welcoming and supportive environment that presents opportunities for all employees and suppliers to succeed and proactively addresses the environmental impacts in the communities where WM operates," Fish said. "WM remains committed to continuous improvement in these areas and seeking innovative ways to support and serve our key stakeholders with the highest integrity, fairness, and respect.

"Our strong fourth quarter finish to the year reflects our commitments to putting our people first, delivering best-in-class customer service, optimizing our cost to serve, and protecting and preserving the environment. This strong finish positions us to continue to deliver out-paced growth in 2024."