Waste Management, Inc. (WM)

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Waste Management, Inc (WM)

Q2 2010 Earnings Call

July 29, 2010 10:00 pm ET

Executives

Jim Alderson - Director, IR

David Steiner - CEO

Bob Simpson - SVP & CFO

Analysts

Scott Levine - JPMorgan

Hamzah Mazari - Credit Suisse

Jonathan Ellis - Bank of America

Corey Greendale - First Analysis

Bill Fisher - Raymond James

Richard Skidmore - Goldman Sachs

Michael Hoffman - Wunderlich Securities

Presentation

Operator

Good morning, my name is Tia and I will be conference operator today. At this time, I would like to welcome everyone to the second quarter 2010 earnings release conference call. (Operator Instructions). I’ll now turn the conference over to Mr. Jim Alderson, Director, Investor Relations. Sir, you may begin.

Jim Alderson

Thank you, Tia. Good morning everyone and thank you for joining us for our second quarter 2010 earnings conference call. With me this morning are David Steiner, Chief Executive Officer and Bob Simpson, Senior Vice President and Chief Financial Officer.

David will start things off with the summary of the financial results for the quarter and a review of the details of our revenue growth including price and volume trends. Bob will cover the financial statement. We will conclude with questions and answers.

During their statements any comparisons made by David and Bob, unless otherwise stated will be with the second quarter of 2009. Before we get started, let me remind you that in addition to our press release that was issued this morning, we have filed a Form 8-K that includes the press release as an attachment and is available on our website at wm.com. The Form 8-K, the press release and the schedules to the release include important information that you should refer to.

In some cases, David and Bob will discuss our results on as adjusted basis including net income, earnings per diluted share, which they may refer to as EPS, operating expenses, effective tax rate and income from operations margin. These financial measures have been adjusted for items management believes do not reflect their fundamental business performance and are not indicative of our results of operation.

All of these measures in addition to free cash flow are non-GAAP measures and you can find reconciliations to the most comparable GAAP measures in this schedule to the earning press release which can be found attached to the Form 8-K file today and on the company’s website at wm.com.

Additionally, during the call, you will hear certain forward-looking statements based on current expectations, opinion or belief of our future period. Those statements are subject to certain risks and uncertainties that could cause actual results to differ materially.

Some of these risks and uncertainties are detailed in our press release this morning and in our filings with the Securities and Exchange Commission, including the Form 10-K, filled for 2009.

This call is been recorded and will be available 24 hours a day beginning approximately 1 pm eastern time today until 5 pm eastern time on August 12. To hear of the call over the internet, access the Waste Management website at wm.com. To hear a telephonic replay the call, dial 800-642-1687 and enter reservation code 811-166-07.

Time-sensitive information given during the course of today’s call, which is occurring on July 29 2010, may no longer be accurate at the time of the replay. Any redistribution, retransmission or rebroadcast of this call in any form without the express written consent Waste Management is prohibited.

Now I will turn the call over to Waste Management CEO David Steiner.

David Steiner

Thank you, Jim and good morning from Houston. We earned $0.54 per share in the second quarter consistent with our quarter and full-year expectations. We did this despite a $0.01 headwind from accounting adjustments related to remediation reserves at our (inaudible) and a $0.01 headwind from increased advertising relating to our new Bagster product. We also continue to see positive signs in volumes that point to further volume improvements throughout the remainder of the year which reinforces our belief that we see will volumes turn positive in the second half of the year.

Revenue increased by $206 million or 7% from the prior-year period. This is the second consecutive quarter of year-over-year revenue growth. Major drivers of our revenue improvement were improved recycling commodity prices, acquisitions and year-over-year increases in revenue growth from yield.

Internal revenue growth from yield on our collection and disposal operation was 2.3% in the second quarter, a marked improvement compared with the first quarter of 2010. Through our discipline and focus on pricing, we overcame much of the first half affect of low and even negative consumer price indices.

As you all know our municipal and franchise contracts are generally adjusted based upon a CPI index. Approximately 35% of our overall collection business is from municipal and franchise contracts. Due to the low to negative CPI in the second half of 2009, the contracts that adjusted at the end of 2009 contributed much less to our pricing results than in prior years.

In Q1 we had a 70-basis point drag to our reported yield from these adjustments and in the second quarter, we had a headwind of about 90 basis point. My congratulations go to our pricing team and field management for overcoming these pricing headwinds. But we need to be just as diligent in the second half of the year. As I mentioned last quarter each field management team has a specific pricing plan tailored to their customer base and designed to meet their area’s 2010 pricing goals.

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