Waste Management, Inc. (WM)

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Waste Management, Inc. (WM)

Q3 2009 Earnings Call Transcript

October 29, 2009 10:00 am ET

Executives

James Alderson – Director, IR

David Steiner – CEO

Lawrence O’Donnell – President and COO

Bob Simpson – SVP and CFO

Analysts

Richard Skidmore – Goldman Sachs

Vance Edelson – Morgan Stanley

Michael Hoffman – Wunderlich Securities

Hamzah Mazari – Credit Suisse

Scott Levine – JP Morgan

Jonathan Ellis – Bank of America/Merrill Lynch

Bill Fisher – Raymond James

Presentation

Operator

Good morning. My name is Nicole and I will be your conference operator today. At this time, I would like to welcome everyone to the Waste Management third quarter 2009 earnings release. (Operator instructions) I would now like to turn the call over to Jim Alderson, Director, Investor Relations. Thank you. Mr. Alderson, you may begin your conference.

James Alderson

Thank you, Nicole. Good morning, everyone and thank you for joining us for our third quarter 2009 earnings conference call. With me this morning are David Steiner, Chief Executive Officer; Larry O’Donnell, President and Chief Operating Officer; and Bob Simpson, Senior Vice President and Chief Financial Officer.

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

During their statements any comparisons made by David, Bob, or Larry unless otherwise stated will be with the third quarter of 2008.

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 schedule to the release include important information that you should refer to.

We have given detailed information on all of the non-GAAP measures that will be discussed on this morning’s call, and have reconciled them to the most comparable GAAP measures, and you can find that information in the schedules for the earnings press release and the Form 8-K filed today, which can be found on the company’s website at wm.com.

Additionally, during the call you will hear certain forward-looking statements concerning our plans and expectations for the fourth quarter and full-year 2009. Actual results could differ materially from our plans and expectations. Certain factors related to future expectations are detailed in our press release this morning and in our filings with the Securities & Exchange Commission, including the Form 10-K filed for 2008.

This call is being recorded and will be available 24 hours a day beginning approximately 1 pm Eastern time today until 5 pm Eastern time on November 12. To hear a replay of the call over the Internet, access the Waste Management website at wm.com. To hear a telephonic replay of the call, dial 800-642-1687 and enter the Reservation Code 3006451. Time-sensitive information given during the course of today’s call which is occurring on October 29, 2009, may no longer be accurate at the time of the replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of Waste Management is prohibited.

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

David Steiner

Thanks, Jim and good morning from Houston.

When we look at the quarter, we see that our core solid waste operations continue to benefit from our pricing and cost programs. Our success is proven by the fact that despite an 8.9% decline in volume, our operational earnings were flat year-over-year. In other words, if we start with $0.54 as adjusted and add back $0.09 of non-operational impacts from our recycling and waste-to-energy operations mentioned in our press release, we would have matched as adjusted prior year earnings, again despite volume losses of 8.9%.

This shows the strength of our core operating model, which focuses on pricing and operational excellence. We would expect the fourth quarter of this year to follow a similar pattern. Our pricing and cost programs will make up for volume losses, but we shouldn't see a significant drag from those non-operational items. With year-over-year declines in our waste-to-energy business likely being offset by year-over-year benefits in our recycling operations.

Consequently, we are confident that we can meet the Wall Street consensus of $0.48 per diluted share in the fourth quarter. I'm pleased that we achieved solid third quarter results given this challenging economic environment. We maintained our focus on pricing and achieved internal revenue growth from yield, on our collection and disposal business of 2.9%. We realized the full benefit of our reorganization announced in February, and are on pace to exceed our original target of $120 million in annualized savings.

We increased productivity in our (inaudible) and residential collections lines of business. We have seen some positive signs on the macroeconomic front with recycling commodity prices increasing each month since the lows reached in January. Natural gas prices, which affect the electricity sales in some of our waste-to-energy plants, have rebounded well in the last two months. Collection and disposal volumes have stabilized, which should lead to slightly better year-over-year volumes comparisons beginning in the fourth quarter of this year and continuing into 2010.

Looking at revenue, in the third quarter revenue declined by $502 million, but most of the decline was a result of items that do not relate to our solid waste collection and disposal operations, $189 million of the decline was due to recycling revenues and electricity sale prices, $108 million was related to the decline in fuel surcharge revenues as oil prices declined, and $10 million was related to foreign currency translation. This leads our third quarter 2009 revenue decline related to our solid waste collection and disposal business of about $195 million or approximately 5.5% of revenue.

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