Waste Management, Inc. (WM)

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Waste Management (WM)

Q1 2011 Earnings Call

April 28, 2011 10:00 am ET

Executives

Ed Egl -

David Steiner - Chief Executive Officer, President and Director

Robert Simpson - Chief Financial Officer and Senior Vice President

Analysts

Scott Levine - JP Morgan Chase & Co

Hamzah Mazari - Crédit Suisse AG

Michael Hoffman - Wunderlich Securities Inc.

Albert Kaschalk - Wedbush Securities Inc.

Vance Edelson - Morgan Stanley

Jerry Barmore

William Fisher - Raymond James & Associates, Inc.

Jonathan Ellis - BofA Merrill Lynch

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 First Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Ed Egl, Director, Investor Relations. Sir, you may begin your conference.

Ed Egl

Thank you, Nicole. Good morning, everyone, and thank you for joining us for the first quarter 2011 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 operating costs and the financial statements. We will conclude with questions and answers. During their statements, any comparisons made by David and Bob, unless otherwise stated, will be with the first quarter of 2010.

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 www.wm.com. The Form 8-K, the press release and the schedule for the release include important information that you should refer to.

During the call, David and Bob will discuss earnings per fully diluted share, which they may refer to as EPS, and the impact certain adjustments would have on EPS. The adjustments discussed are items management believes do not reflect our solid waste business performance and are not indicative of our results of operations. EPS, excluding certain items, projected adjusted EPS and free cash flow are non-GAAP measures.

Please refer to the reconciliations to the most comparable GAAP measures in the Form 8-K filed today in the earnings press release, footnote and schedules thereto, which can be found attached to the Form 8-K and on the company's website at www.wm.com.

Additionally, during the call, you will hear certain forward-looking statements based on current expectations, opinions or beliefs about future periods. Those statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are detailed in our earnings press release this morning and in our filings with the Securities and Exchange Commission, including our most recent Form 10-K.

This call is being recorded and will be available 24 hours a day, beginning approximately 1 p.m. Eastern Time today until 5 p.m. Eastern Time on May 12. To hear a replay of the call over the Internet, access the Waste Management website at www.wm.com. To hear a telephonic replay of the call, dial (800) 642-1687 and enter reservation code 51272844.

Time-sensitive information provided during today's call, which is occurring on April 28, 2011, may no longer be accurate at the time of a 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's CEO, David Steiner.

David Steiner

Thanks, Ed, and good morning from Houston. During the first quarter, our solid waste operations performed well, with strong yield performance offsetting weaker-than-expected volumes. Our overall business earned $0.39 per diluted share, with about $0.09 of impact from short-term headwind. Year-over-year, we had a negative impact of $0.02 per diluted share from our waste-to-energy operations and $0.01 per diluted share from stock option grants under our long-term compensation program. We also had negative impacts of $0.03 per diluted share from our cost reduction initiatives and a negative $0.03 per diluted share from our growth initiatives. Without these, our earnings would have been $0.48 per diluted share, which demonstrates the strength of our solid waste business.

Spending on our cost reduction initiatives will slow in the second quarter, and we should begin to see year-over-year benefits in the third quarter. Our portfolio of growth initiatives, like Bagster and medical waste, will negatively affect the second and possibly the third quarters, but should become profitable by the end of the year. And our waste-to-energy business will have a small negative effect in the second quarter but will begin to add year-over-year earnings growth in the third or fourth quarter. So these headwinds should be very short term, and we expect them to drive operational and earnings improvement for years to come.

During the first quarter, revenue increased by $168 million or 5.7% from the prior year quarter. This is the fifth consecutive quarter of positive year-over-year revenue comparison. Major drivers of our revenue improvement are improved recycling volumes at higher commodity prices, the continued emphasis on year-over-year yield increases and acquisitions.

Internal revenue growth from yield on our collection and disposal operations was 2.8% in the quarter. This represents the highest yield since the third quarter of 2009 and the third quarter of sequential growth. In the coming quarters, many of our fees and surcharges will anniversary, causing downward pressure on yield growth. CPI is an important component of pricing in our municipal sector. CPI increased about 1% for the first 3 months of 2011, consistent with our expectations, but below the level we saw in the first quarter of 2010.

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