Waste Management (WM) Beats on Q3 Earnings, Raises EPS View

Waste Management, Inc. WM reported mixed third-quarter 2018 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues missed.

Adjusted earnings per share (EPS) came in at $1.15, ahead of the consensus mark by 5 cents and increased 27.8% year over year. Total revenues of $3.82 billion missed the consensus mark by $2 million but improved 2.9% year over year.

The year-over-year top-line improvement can be attributed to strong yield and volume growth in the company's collection and disposal business, which contributed $200 million of incremental revenues. This was partially offset by a decrease in revenues from the recycling line of business, which declined $52 million on a year-over-year basis.

Internal revenue growth from yield for collection and disposal operations was 2.5% compared with 2% in the year-ago quarter.

Traditional solid waste internal revenue growth from volume came in at 3.2% or 3.4% on a workday-adjusted basis. Total company internal revenue growth from volume, which includes recycling and other ancillary businesses, was 4.2% or 4.4% on a workday-adjusted basis.

In a year's time, shares of Waste Management have gained 12.5%, outperforming the industry 's 4.6% growth.

Let's check out the numbers in detail.

Revenues by Segment

The Collection segment recorded revenues of $2.49 billion, up 5.7% from the prior-year quarter. Landfill segment's top line increased 4.8% year over year to $926 million. While total revenues from the Transfer segment were up 8% to $445 million, the same from the Recycling segment decreased 10.1% to $337 million. Other businesses' revenues totaled $430 million, down 2.9% year over year.

Waste Management, Inc. Price, Consensus and EPS Surprise

Waste Management, Inc. Price, Consensus and EPS Surprise | Waste Management, Inc. Quote

Operating Performance

In the reported quarter, adjusted operating EBITDA was $1.11 billion, up 3.4% from the year-ago quarter number.

As a percentage of revenues, operating expenses of 62.1% increased 20 basis points (bps) from the year-ago quarter. SG&A expenses, as a percentage of revenues, were 9% compared with 9.6% in the prior-year quarter.

Balance Sheet and Cash Flow

Waste Management exited the third quarter with cash and cash equivalents of $83 million compared with $47 million at the end of the second quarter. Long-term debt at the end of the quarter was $9.6 billion compared with $9 billion in the previous quarter.

The company generated $874 million of cash from operating activities and spent $404 million in capital expenditures. Free cash flow was $480 million compared with $509 million in the prior-year quarter.

The company paid dividends worth $199 million and repurchased shares worth $200 million in the third quarter. It spent $79 million on acquisitions of traditional solid waste businesses during the reported quarter.

2018 Guidance

Waste Management raised its adjusted earnings per share (EPS) guidance for 2018. The company now expects adjusted earnings in the range of $4.13-$4.15 per share compared with $4.05-$4.10 expected earlier. The Zacks Consensus Estimate stands at $4.08, which is well below the current guided range.

Adjusted operating EBITDA guidance range was narrowed from $4.20-$4.25 billion to $4.20-$4.22 billion. Free cash flow guidance range was narrowed from $1.95-$2.05 billion to $1.95-$2.0 billion.

Zacks Rank & Upcoming Releases

Waste Management currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

Investors interested in the broader Business Services sector are keenly awaiting earnings reports of key players like Booz Allen Hamilton Holding BAH , Waste Connections WCN and First Data FDC . While Booz Allen Hamilton will report second-quarter fiscal 2019 results on Oct 29, Waste Connections and First Data will release third-quarter 2018 results on the same day.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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