Waste Management Announces First Quarter 2005 Earnings and Reaffirms Guidance on Full Year Financial Projections
HOUSTON, Apr 28, 2005 (BUSINESS WIRE) -- Waste Management, Inc. (NYSE:WMI) today announced financial results for its first quarter ended March 31, 2005. Revenues for the quarter were $3.04 billion as compared with $2.90 billion in the year ago period, or an increase of 4.9%. Net income for the quarter was $150 million, or $0.26 per diluted share, as compared with $152 million, or $0.26 per diluted share in the prior year period. In the 2004 quarter, net income, before considering a favorable $8 million cumulative effect of change in accounting principle, was $144 million, or $0.25 per diluted share.
Net income for the first quarter of 2005 increased 4.2% as compared with the net income for the first quarter of 2004 before considering the favorable cumulative effect of change in accounting principle in 2004. The cumulative effect of change in accounting principle in 2004 was related entirely to final implementation of Financial Accounting Standards Board Interpretation No. 46, Consolidation of Variable Interest Entities ("FIN 46").
"Our first quarter results reflect the strong progress we have made in improving our pricing in all of our lines of business and in our ability to control costs of maintenance, workers compensation, and salaries and wages," stated David P. Steiner, Chief Executive Officer of Waste Management. "Our performance in the quarter was right on track with our expectations and we are confident that we will achieve our 2005 financial goals."
Steiner added, "We were pleased with our internal revenue growth due to higher yield. At 2.1% for the quarter, this matches the highest level we have seen in the past five years. Yield was higher across our entire business as we saw improvements in all collection lines of business, in the three primary landfill waste streams, and across our transfer stations and waste-to-energy facilities. The revenue increase due to yield grew 2.9% if you include the favorable impact of our fuel surcharge program. As we see continued cost pressures in our operations, we will maintain our focus on increasing prices to recover those costs for the remainder of 2005 and beyond."
Key Highlights for the Quarter
-- Net cash provided by operating activities of $508 million.
-- Free cash flow(a) of $420 million.
-- Capital expenditures of $185 million.
-- Internal revenue growth on base business of 3.1%, with 2.1% of that from average yield and 1.0% from volume. The yield component excludes combined positive impacts of 0.9% related to higher recycling commodity prices, higher fuel surcharges and changes in electricity rates at Independent Power Production facilities.
-- Acquisitions net of divestitures contributed 0.6% to higher revenues in the quarter.
-- Price increases improved to 4.0% on our commercial customer base and to 3.2% on our total collection customer base.
-- $213 million returned to shareholders in the form of $114 million in cash dividends and $99 million in common stock repurchases.
The Company noted several items which impacted the current quarter's results:
-- A $0.05 per diluted share gain related to the divestiture of the Ridge landfill in Canada, which closed in January of 2005.
-- A $0.03 per diluted share charge to settle a lawsuit with a group of shareholders who had opted not to participate in the settlement of the class action lawsuit against us related to 1998 and 1999 activity.
-- A $0.02 per diluted share decrease in earnings related to the cost of a seven-week strike in New Jersey and accelerated expenses under our new long-term incentive plan for those employees eligible for retirement.
Steiner continued, "There were a number of other encouraging factors in our first quarter results. Net cash provided by operating activities and free cash flow were both strong for the quarter. We returned $213 million to shareholders in the form of our $0.20 per share quarterly dividend and our share repurchase program. Higher volumes also contributed 1.0% to the increase in revenues, even in light of the unusually wet weather that occurred in a number of our key markets. We also improved productivity in our commercial and industrial lines of business, which is an important component of our cost control initiatives.
"We expect the momentum of our pricing programs to carry forward through the remainder of the year. We reported today that, based on the success of our landfill pricing study during the first quarter, we will expand that study to include 23 transfer stations, plus a total of 58 landfills and transfer stations in four Market Areas. Today we also announced a seasonal price increase plan for the temporary roll-off segment of our business, similar to seasonal pricing done by other industries during periods of peak demand."
Steiner concluded, "We are confident about the outlook for our price and operational initiatives and we reaffirm our full-year financial projections which we issued on February 10th of this year. In reaffirming our earnings projection, we note that it is within the mid-to-upper end of the analysts' current range of $1.50 to $1.60 per diluted share." ---------- (a) The Company included its free cash flow, which is a non-GAAP financial measure, herein because it believes that investors are interested in the cash produced by the Company from non-financing activities that is available for uses such as the Company's acquisition program, its share repurchase program, its scheduled debt reduction and the payment of dividends. The Company defines free cash flow as: -- Net cash provided by operating activities -- Less, capital expenditures -- Plus, proceeds from divestitures of businesses, net of cash divested, and other sales of assets The Company's definition of free cash flow may not be comparable to similarly titled measures presented by other companies. The Company has reconciled its free cash flow as presented herein to cash flow from operations, which is the most comparable GAAP measure, in the accompanying schedules.
The Company has scheduled an investor and analyst conference call for later this morning to discuss the results of today's earnings announcement. The information in this press release should be read in conjunction with the information on the conference call. The call will begin at 9:00 a.m. Eastern time, 8:00 a.m. Central time, and is open to the public. To listen to the conference call, which will be broadcast live over the Internet, go to the Waste Management Website at http://www.wm.com, and select "First Quarter 2005 Earnings Webcast." You may also listen to the conference call by telephone by contacting the conference call operator at (877) 710-6139, 5-10 minutes prior to the scheduled start, and asking for the "Waste Management Conference Call - Call ID 4978881." US/Canada Dial-In #: (877) 710-6139. Int'l/Local Dial-In #: (706) 643-7398. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately 10:00 a.m. CT April 28th through 5:00 p.m. CT on May 12th. To hear a replay of the call over the Internet, access the Waste Management Website at http://www.wm.com. To hear a telephonic replay of the call, dial (800) 642-1687 or (706) 645-9291 and enter reservation code 4978881.
Waste Management, Inc. is its industry's leading provider of comprehensive waste management and environmental services. Based in Houston, the Company serves municipal, commercial, industrial, and residential customers throughout North America.
Certain statements contained in this press release include statements that are "forward-looking statements." Outlined below are some of the risks that the Company faces and that could affect our financial statements for 2005 and beyond and that could cause actual results to be materially different from those that may be set forth in forward-looking statements made by the Company. However, they are not the only risks that the Company faces. There may be additional risks that we do not presently know or that we currently believe are immaterial which could also impair our business. We caution you not to place undue reliance on these forward-looking statements, which speak only as of their dates. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the Company, from time to time, provides estimates of financial and other data relating to future periods. Such estimates and other information are the Company's expectations at the point in time of issuance but may change at some future point in time. By issuing such estimates the Company has no obligation, and is not undertaking any obligation, to update such estimates or provide any other information relating to such estimates. The following are some of the risks we face:
-- the effects competition may have on our profitability or cash flows, including the negative impact to our yield on base business resulting from price roll-backs and lower than average pricing to retain and attract customers;
-- our inability to maintain or expand margins as volumes increase if we are unable to control variable costs or our fixed cost base increases;
-- increases in employee-related costs and expenses, including health care and other employee benefits such as unemployment insurance and workers' compensation, as well as the costs and expenses associated with attracting and retaining qualified personnel;
-- possible increases in expenses due to fuel price increases or fuel supply shortages;
-- the effect that fluctuating commodity prices may have on our operating revenues and expenses;
-- the general effects of a weak economy, including the resulting decreases in volumes of waste generated;
-- external factors beyond our control, such as higher interest rates and the possible inability of insurers to meet their obligations, both of which may cause increased expenses;
-- the effect the weather has on our quarter to quarter results, as well as the effect of extremely harsh weather on our operations;
-- possible changes in our estimates of site remediation requirements, final capping, closure and post-closure obligations, compliance and regulatory developments;
-- the possible impact of regulations on our business, including the cost to comply with regulatory requirements and the potential liabilities associated with disposal operations;
-- our ability to obtain and maintain permits needed to operate our facilities;
-- the effect of limitations or bans on disposal or transportation of out-of-state waste or certain categories of waste;
-- possible charges against earnings as a result of shut-down operations, uncompleted development or expansion projects or other events;
-- the effects that trends toward requiring recycling, waste reduction at the source and prohibiting the disposal of certain types of wastes could have on volumes of waste going to landfills and waste-to-energy facilities;
-- possible diversions of management's attention and increases in operating expenses due to efforts by labor unions to organize our employees;
-- the outcome of litigation or threatened litigation;
-- the need for additional capital if cash flows are less than we expect or capital expenditures are more than we expect, and the possibility that we cannot obtain additional capital on acceptable terms if needed;
-- possible errors or problems upon implementation of new information technology systems; and
-- possible fluctuations in quarterly results of operations or adverse impacts on our results of operations as a result of the adoption of new accounting standards or interpretations.
Additional information regarding these and/or other factors that could materially affect results and the accuracy of the forward-looking statements contained herein may be found in Part I, Item 1 of the Company's Annual Report on Form 10-K for the year ended December 31, 2004.
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-----------------------------
2005 2004
-------------- --------------
Operating revenues $3,038 $2,896
-------------- --------------
Costs and expenses:
Operating (exclusive of
depreciation and amortization
shown below) 2,044 1,920
Selling, general and administrative 330 316
Depreciation and amortization 321 325
Asset impairments and unusual items (23) (9)
-------------- --------------
2,672 2,552
-------------- --------------
Income from operations 366 344
-------------- --------------
Other income (expense):
Interest expense (116) (113)
Interest income 6 3
Equity in net losses of
unconsolidated entities (26) (19)
Minority interest (10) (7)
Other, net - (2)
-------------- --------------
(146) (138)
-------------- --------------
Income before income taxes and
cumulative effect of change in
accounting principle 220 206
Provision for income taxes 70 62
-------------- --------------
Income before cumulative effect of
change in accounting principle 150 144
Cumulative effect of change in
accounting principle, net of income
tax expense of $5 for 2004 - 8
-------------- --------------
Net income $150 $152
============== ==============
Basic earnings per common share:
Income before cumulative effect of
change in accounting principle $0.26 $0.25
Cumulative effect of change in
accounting principle - 0.01
-------------- --------------
Net income $0.26 $0.26
============== ==============
Diluted earnings per common share:
Income before cumulative effect of
change in accounting principle $0.26 $0.25
Cumulative effect of change in
accounting principle - 0.01
-------------- --------------
Net income $0.26 $0.26
============== ==============
Weighted average basic common shares
outstanding 568.8 577.3
============== ==============
Weighted average diluted common shares
outstanding 572.8 582.8
============== ==============
Cash dividends per common share $0.20 $0.19
============== ==============
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-----------------------------
2005 2004
-------------- --------------
EPS Calculation:
Income before cumulative effect of
change in accounting principle $150 $144
Cumulative effect of change in
accounting principle - 8
-------------- --------------
Net income $150 $152
============== ==============
Number of common shares outstanding at
end of period 568.3 579.7
Effect of using weighted average common
shares outstanding 0.5 (2.4)
-------------- --------------
Weighted average basic common shares
outstanding 568.8 577.3
Dilutive effect of equity-based
compensation awards, warrants
and other contingently issuable
shares 4.0 5.5
-------------- --------------
Weighted average diluted common shares
outstanding 572.8 582.8
============== ==============
Basic earnings per common share:
Income before cumulative effect of
change in accounting principle $0.26 $0.25
Cumulative effect of change in
accounting principle - 0.01
-------------- --------------
Net income $0.26 $0.26
============== ==============
Diluted earnings per common share:
Income before cumulative effect of
change in accounting principle $0.26 $0.25
Cumulative effect of change in
accounting principle - 0.01
-------------- --------------
Net income $0.26 $0.26
============== ==============
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
March 31, December 31,
2005 2004
------------- ---------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $441 $424
Receivables, net 1,834 1,949
Other 407 446
------------- ---------------
Total current assets 2,682 2,819
Property and equipment, net 11,378 11,476
Goodwill 5,340 5,301
Other intangible assets, net 157 152
Other assets 1,101 1,157
------------- ---------------
Total assets $20,658 $20,905
============= ===============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued
liabilities and deferred
revenues $2,699 $2,821
Current portion of long-term debt 319 384
------------- ---------------
Total current liabilities 3,018 3,205
Long-term debt, less current portion 8,067 8,182
Other liabilities 3,341 3,265
------------- ---------------
Total liabilities 14,426 14,652
Minority interest in subsidiaries and
variable interest entities 289 282
Stockholders' equity 5,943 5,971
------------- ---------------
Total liabilities and
stockholders' equity $20,658 $20,905
============= ===============
Note: Prior year information has been reclassified to conform to 2005
presentation.
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
Quarters Ended March 31,
------------------------
2005 2004
----------- -----------
Cash flows from operating activities:
Net income $150 $152
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of change in accounting
principle - (8)
Depreciation and amortization 321 325
Other 26 59
Change in operating assets and
liabilities, net of effects of
acquisitions and divestitures 11 (58)
----------- -----------
Net cash provided by operating activities 508 470
----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired (87) (73)
Capital expenditures (185) (181)
Purchases of short-term investments (86) (431)
Proceeds from sales of short-term
investments 96 84
Other, net 141 100
----------- -----------
Net cash used in investing activities (121) (501)
----------- -----------
Cash flows from financing activities:
New borrowings - 347
Debt repayments (118) (9)
Common stock repurchases (99) (24)
Cash dividends (114) (109)
Exercise of common stock options and
warrants 26 48
Other, net (67) (46)
----------- -----------
Net cash provided by (used in) financing
activities (372) 207
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents 2 -
----------- -----------
Increase in cash and cash equivalents 17 176
Cash and cash equivalents at beginning of
period 424 217
----------- -----------
Cash and cash equivalents at end of period $441 $393
=========== ===========
Note: Prior year information has been reclassified to conform to 2005
presentation.
Waste Management, Inc.
Summary Data Sheet
(Dollar amounts in Millions)
(Unaudited)
Quarters Ended
------------------------------------
March 31, December 31, March 31,
2005 2004 2004
----------- ------------ -----------
Operating Revenues by Lines of
Business
----------------------------------
NASW:
Collection $2,057 $2,141 $1,964
Landfill 676 762 664
Transfer 387 422 369
Wheelabrator 202 210 196
Recycling and other 287 281 249
Intercompany (571) (608) (546)
----------- ------------ -----------
Operating revenues $3,038 $3,208 $2,896
=========== ============ ===========
Internal Growth of Operating Revenues from
Comparable Prior Periods
---------------------------------------------
Internal growth 4.0% 6.4% 3.0%
Less: Yield changes due to
recycling commodities,
electricity (IPP) and fuel
surcharge 0.9% 1.9% 1.1%
----------- ------------ -----------
Adjusted internal growth 3.1% 4.5% 1.9%
=========== ============ ===========
Acquisition Summary (a)
----------------------------------
Gross annualized revenue
acquired $97 $15 $57
=========== ============ ===========
Total consideration $100 $17 $75
=========== ============ ===========
Cash paid for acquisitions $85 $16 $66
=========== ============ ===========
Recycling Segment Supplemental
Data (b)
----------------------------------
Operating revenues $196 $179 $167
=========== ============ ===========
Operating expenses (exclusive
of depreciation and
amortization) $167 $159 $144
=========== ============ ===========
Quarters Ended March 31,
------------------------
2005 2004
----------- ------------
Free Cash Flow Analysis (c)
----------------------------------
Net cash provided by operating
activities $508 $470
Capital expenditures (185) (181)
Proceeds from divestitures of
businesses, net of cash divested,
and other sales of assets 97 22
----------- ------------
Free cash flow $420 $311
=========== ============
(a) Represents amounts associated with business acquisitions
consummated during the indicated periods.
(b) Information provided is after the elimination of intercompany
revenues and related expenses.
(c) The summary of free cash flows has been prepared to highlight and
facilitate understanding of the principal cash flow elements. Free
cash flow is not a measure of financial performance under
generally accepted accounting principles and is not intended to
replace the consolidated statement of cash flows that was prepared
in accordance with generally accepted accounting principles. We
continue to project full-year 2005 free cash flow to be in the
range of $1.1 billion to $1.2 billion, based on estimated net cash
provided by operating activities in the range of $2.25 billion to
$2.35 billion, capital expenditures of between $1.25 billion and
$1.35 billion, and proceeds from divestitures, net of cash
divested and other sales of assets of $125 million to $150
million.
Waste Management, Inc.
Summary Data Sheet
(Dollar amounts in Millions)
(Unaudited)
Quarters Ended
--------------------------------------
March 31, December 31, March 31,
2005 2004 2004
------------ ------------ ------------
Balance Sheet Data
--------------------------------
Cash and cash equivalents (a) $441 $424 $393
============ ============ ============
Debt-to-total capital ratio:
Long-term indebtedness,
including current portion $8,386 $8,566 $9,020
Total equity (a) 5,943 5,971 5,712
------------ ------------ ------------
Total capital $14,329 $14,537 $14,732
============ ============ ============
Debt-to-total capital (a) 58.5% 58.9% 61.2%
============ ============ ============
Capitalized interest $3 $6 $4
============ ============ ============
Other Operational Data
--------------------------------
Internalization of waste, based
on disposal costs 65.1% 65.0% 64.5%
============ ============ ============
Total landfill disposal volumes
(tons in millions) (a) 28.0 30.6 27.3
Total waste-to-energy disposal
volumes (tons in millions) (a) 1.9 1.9 1.9
------------ ------------ ------------
Total disposal volumes (tons in
millions) 29.9 32.5 29.2
============ ============ ============
Active landfills 285 286 289
============ ============ ============
Landfills reporting volume 264 264 267
============ ============ ============
Amortization and SFAS No. 143
--------------------------------
Expenses for Landfills Included
--------------------------------
in Operating Groups
--------------------------------
Non - SFAS No. 143 amortization
expense $87.7 $99.5 $86.7
Amortization expense related to
SFAS No. 143 obligations (b) 14.0 (4.5) 19.6
------------ ------------ ------------
Total amortization expense 101.7 95.0 106.3
Accretion and other related
expense 13.1 14.2 9.8
------------ ------------ ------------
Landfill amortization, accretion
and other related expense $114.8 $109.2 $116.1
============ ============ ============
(a) Prior period information has been reclassified to conform to 2005
presentation.
(b) Reflected in the quarter ended December 31, 2004 results was a $23
million reduction in landfill amortization expense. This reduction
was related primarily to adjustments to our fully accrued landfill
final capping obligations and was a result of fourth quarter
event-driven changes as well as changes in certain estimates as a
result of our annual landfill review process.
Exhibit 1
Waste Management, Inc.
Analysis of Operating Expenses
This schedule is being provided to reflect more detail regarding
expense items included in operating expense categories and to disclose
the current quarter reclassifications between categories to be
reported in the Company's first quarter 2005 Form 10-Q filing. We are
providing this information and have made these reclassifications to
improve our investors' understanding of the business and with the hope
it will lead to further standardization of presentation format within
the solid waste industry.
OPERATING EXPENSE CATEGORIES -
Transfer
and
Labor and disposal Maintenance Subcontractor Cost of
related benefits costs and repairs costs goods sold
---------------- ---------- ------------- ------------- --------------
Salaries & wages Disposal Maintenance Primarily Primarily
Overtime to and repairs independent rebates paid
Bonus landfill labor haulers who to suppliers
Safety bonus Disposal Tires transport associated
Commissions to Parts & our waste to with
Other transfer supplies disposal recycling
compensation station Lubricants facilities commodities
Compensated Disposal Building Costs
absences to other maintenance associated
Vacation wages facility Third party with the
Severance maintenance operation of
Group insurance services IPP
Employer 401k Container facilities -
matching maintenance wood waste,
Union dues Other natural gas,
Safety program maintenance oil & coal
expense and tires
Pension expense
Employee vehicle
costs
Payroll tax
expense
Contract labor
Other employee
costs
RECLASSIFICATIONS -
Removed from Added to
Category Category
------------------ ------------
Maintenance and Maintenance
repairs labor and repairs
(moved to labor
Maintenance and (moved from
repairs) Labor and
related
benefits)
Workers'
compensation
insurance (moved
to Risk
management)
Exhibit 1
Waste Management, Inc.
Analysis of Operating Expenses
(continued)
Disposal Landfill
and operating Risk
franchise costs management
fees and (new (new
Fuel taxes category) category) Other
----------------- ---------- ----------- -------------- --------------
All types of Disposal Interest Workers' Property taxes
fuel - diesel, fees & accretion compensation Rental
gasoline, taxes on asset insurance Utilities
propane, Municipal retire- Insurance & Vehicle
LNG, CNG, franchise ment claims transpor-
methanol and fees obligations tation costs
other fuels Host Leachate Environmental
Fuel tax credit community treatment compliance
fees costs Fines &
Landfill Landfill penalties
fees & remediation License, fees
taxes costs & permits
Royalties Methane Market
collection development
and Seminars &
treatment education
Other Supplies
landfill Telecom-
site costs munications
Travel &
entertainment
Gain/losses
from sale
of assets
Miscellaneous
Added to Added to Removed from
Category Category Category
------------ ------------- --------------
Landfill Workers' Landfill
operating compensation operating
costs insurance costs (moved
(moved from (moved from to Landfill
Other) Labor and operating
related costs)
benefits)
Insurance Insurance and
and claims claims (moved
(moved from to Risk
Other) management)
SOURCE: Waste Management, Inc.
Waste Management, Inc., Houston Analysts: Greg Nikkel, 713-265-1358 or Media: Heather Browne, 713-265-1514