Waste Management, Inc. (WM)

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Waste Management (WM)

Q2 2011 Earnings Call

July 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.

Corey Greendale - First Analysis Securities Corporation

William Fisher - Raymond James & Associates, Inc.

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 Second Quarter 2011 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Ed Egl, Director, Investor Relations. Please go ahead, sir.

Ed Egl

Thank you, Nicole. Good morning, everyone and thank you for joining us for our second 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 a summary of the financial results of 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 second quarter of 2010.

Before we get started, let me remind you that in addition to our earnings press release that was issued this morning, we have filed a Form 8-K that includes the press release as Exhibit 99.1 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. Please note that projected adjusted EPS and free cash flow are non-GAAP measures. Please refer to the reconciliations to the most comparable GAAP measures in the earnings press release footnote na the 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. Such 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.

Please note that our Form 8-K filed earlier this morning also include a copy of our press release announcing our acquisition of Oakleaf. You should be aware that projected EPS, free cash flow and all other forward-looking statements, except those specifically pertaining to the Oafleaf transaction do not incorporate any benefits or costs associated with the Oafleaf transaction. For information on additional risks and uncertainties pertaining to the Oafleaf's transaction, please see the press release filed as Exhibit 99.2 to our Form 8-K.

This call is being recorded and will be available 24 hours a day beginning approximately 1:00 p.m. Eastern Time today until 5:00 p.m. Eastern Time on August 11. 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 73675301. Time sensitive information provided during today's call, which is occurring on July 28, 2011, 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's CEO, David Steiner.

David Steiner

Thanks, Ed, and good morning from Houston. During the second quarter, we earned $0.50 per diluted share. A number of things in the quarter went just as we expected. As previously discussed, we had about $0.06 of combined earnings per share headwinds from our waste energy operations, our growth initiatives and our cost reduction programs.

In the back half of the year, we expect these collective headwinds to abate and for our cost reduction efforts to begin to add to earnings. However, in the quarter, a few things did not go as we expected. We had a $0.04 reduction in earnings per share from increased maintenance from repair costs, legal items and risk management. The legal and risk management items are second quarter issues but the maintenance increase is primarily due to higher commodity prices. So we'll likely see higher maintenance costs in the back half of the year.

Our revenue growth from yield was slightly below expectations for the quarter and our revenue growth from volume was lower than our expectations. With respect to yield, we're taking immediate and significant pricing actions to increase our yield. With respect to volumes, we continue to move forward with our customer focused growth initiatives, and the transaction that we announced today to purchase Oafleaf will certainly accelerate those efforts.

We're pleased that during the second quarter, revenue increased by $189 million or 6% from the prior-year quarter. This is the sixth consecutive quarter of positive year-over-year revenue comparison. Higher commodity prices, improved recycling volumes, acquisitions and year-over-year yield increases contributed to the revenue growth. While internal revenue growth from yield continues to provide positive revenue growth, we're not satisfied with the results for the second quarter. Internal revenue growth from yield and our collection and disposal operations was 1.6% in the quarter and 2.2% year-to-date through June 30.

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