Waste Management Announces First Quarter 2006 Earnings; Earnings Per Diluted Share Increase 31%
HOUSTON--(BUSINESS WIRE)--April 27, 2006--Waste Management, Inc. (NYSE:WMI) today announced financial results for its first quarter ended March 31, 2006. Revenues for the quarter were $3.23 billion as compared with $3.04 billion in the year ago period, or an increase of 6.3%. Net income for the quarter was $186 million, or $0.34 per diluted share, compared with $150 million, or $0.26 per diluted share in the prior year period, a 31% increase in earnings per diluted share.
"We are very pleased with our results in the first quarter as we again accomplished our primary financial goals of earnings growth, margin expansion and strong free cash flow," said David P. Steiner, Chief Executive Officer of Waste Management. "The continued success of our Pricing Excellence Program and our cost control and productivity initiatives helped drive the 31% increase in earnings per diluted share. Our internal revenue growth from yield on base business increased 3.9% in the first quarter of 2006 compared with the prior year quarter, and it grew 5.3% when you include the impact of our fuel surcharge program. Significantly higher disposal volumes also contributed to the increase in revenues. We believe that unusually warm and dry weather and a solid economic environment contributed to the higher disposal volumes in the first quarter."
The Company noted two items which impacted the current quarter's results.
-- A $20 million before tax, or $0.02 per diluted share, charge
with respect to unclaimed property obligations dating back to
1980.
-- A $4 million after tax, or $0.01 per diluted share, benefit
due primarily to favorable state tax audit settlements.
"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 $496 million to shareholders in the form of our $0.22 per share quarterly dividend and our share repurchase program. We improved productivity in all of our collection lines of business and produced excellent safety results, both of which are important components of our cost control initiatives. And our previously announced divestiture program, which represents over $900 million in annual revenue, is progressing according to our timetable. Finally, on an as reported basis, income from operations as a percent of revenue improved 150 basis points in the quarter compared with the prior year quarter."
Key Highlights for the Quarter
-- Net cash provided by operating activities of $563 million, a
10.8% increase compared with the first quarter of 2005.
-- Capital expenditures of $171 million.
-- Free cash flow(a) of $410 million.
-- Operating expenses were 65.0% of revenue, down from 67.3% of
revenue in the same period in 2005.
-- Selling, general and administrative expenses were 11.4% of
revenue. Excluding the unclaimed property charge, selling,
general and administrative expenses were 10.8% of revenue in
the first quarter of 2006, approximately the same level as the
first quarter of 2005. (a)
-- Income from operations as a percent of revenue was 13.5%, an
increase of approximately 150 basis points compared with the
prior year quarter.
-- Internal revenue growth on base business of 5.8%, with 3.9% of
that from yield and 1.9% from volume. The yield component
excludes the net 0.3% positive impact of higher fuel
surcharges and fees, lower recycling commodity prices and
slight increases in electricity rates at Independent Power
Production facilities.
-- $496 million in cash returned to shareholders in the form of
$375 million in common stock repurchases and $121 million in
dividend payments.
-- The effective tax rate in the quarter was 35.6%, which was
higher than the previously projected rate of approximately
31%. This increase in the effective tax rate is due primarily
to an estimated phase-out of approximately 61% of our Section
45K (formerly Section 29) tax credits due to higher actual and
projected crude oil prices.
Steiner concluded, "We are off to a great start and have laid the foundation for a successful year. We are seeing the continuation of the benefits of our pricing and operational initiatives and our business fundamentals remain solid. While we are optimistic about the year, in the second quarter we will be watching the impact of higher crude oil costs on our Section 45K tax credits, and whether volumes in the first quarter were borrowed from the second quarter. Consequently, until we have more clarity on these factors, we believe it is premature to comment on our full year outlook."
(a) This earnings release contains a discussion of free cash flow, a non-GAAP financial measure as defined in Regulation G of the Securities Exchange Act of 1934, as amended. 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 believes that providing investors with certain non-GAAP financial measures gives investors additional information to enable them to assess, in the way management assesses, the Company's current and continuing operations. The Company included the non-GAAP financial measure of free cash flow because it uses that measure in the management of its business and 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. A reconciliation of free cash flow to the Company's GAAP reported cash flows from operating activities, which is the most comparable GAAP measure, is included in the accompanying schedules. This release also presents an adjusted ratio of selling, general and administrative expenses as a percentage of revenue. The Company excluded the $19 million before tax selling, general and administrative portion of the charge for unclaimed property obligations from selling, general and administrative expenses in its presentation of this adjusted ratio because it believes that it is helpful for investors to see the Company's performance without the effect of the adjustment for these obligations, which date back to 1980. Investors are urged to take into account GAAP measures as well as non-GAAP measures in evaluating the Company.
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 10:00 a.m. Eastern time, 9:00 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 "1Q2006 Earnings Report Webcast." You may also listen to the analyst conference call by telephone by contacting the conference call operator 5 to 10 minutes prior to the scheduled start time and asking for the "Waste Management Conference Call - Call ID 7247347." US/Canada Dial-In Number: 877-710-6139. Int'l/Local Dial-In Number: 706-643-7398. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately 11:00 a.m. Central time on April 27 through 5:00 p.m. Central time on May 11. 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 7247347.
Waste Management, Inc., based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the Company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. The Company's customers include residential, commercial, industrial, and municipal 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 2006 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:
-- competition may negatively affect our profitability or cash
flows, our price increases may have negative effects on
volumes and price roll-backs and lower than average pricing to
retain and attract customers may negatively affect our yield
on base business;
-- we may be unable to maintain or expand margins as volumes
increase if we are unable to control variable costs or fixed
cost base increases;
-- we may be unable to attract or retain qualified personnel,
including licensed commercial drivers and truck maintenance
professionals, due to any number of factors including
qualified workforce shortages;
-- we may not be able to successfully execute or continue our
operational or other margin improvement plans and programs,
including pricing increases, passing on increased costs to our
customers, divesting of under-performing assets and purchasing
accretive businesses, any of which could negatively affect our
revenues and margins;
-- fuel price increases or fuel supply shortages may increase our
expenses, including our tax expense if Section 45K (formerly
Section 29) credits are phased out due to continued high crude
oil prices;
-- fluctuating commodity prices may have negative effects on our
operating revenues and expenses;
-- inflation and resulting higher interest rates may have
negative effects on the economy, which could result in
decreases in volumes of waste generated and increases in our
financing costs and expenses;
-- the possible inability of our insurers to meet their
obligations may cause our expenses to increase;
-- weather conditions cause our quarter to quarter results to
fluctuate, and extremely harsh weather or natural disasters
may cause us to shut down operations;
-- possible changes in our estimates of site remediation
requirements, final capping, closure and post-closure
obligations, compliance and regulatory developments may
increase our expenses or reduce revenues;
-- regulations may negatively impact our business by, among other
things, increasing the cost to comply with regulatory
requirements and the potential liabilities associated with
disposal operations;
-- if we are unable to obtain and maintain permits needed to
operate our facilities our results of operations will be
negatively impacted;
-- limitations or bans on disposal or transportation of
out-of-state or cross-border waste or certain categories of
waste can increase our expenses;
-- possible charges as a result of shut-down operations,
uncompleted development or expansion projects or other events
may negatively affect earnings;
-- trends toward requiring recycling, waste reduction at the
source and prohibiting the disposal of certain types of wastes
could have negative effects on volumes of waste going to
landfills and waste-to-energy facilities, which are higher
margin businesses than recycling;
-- efforts by labor unions to organize our employees may divert
management's attention and increase operating expenses and we
may be unable to negotiate acceptable collective bargaining
agreements with those who have been chosen to be represented
by unions, which could lead to union-initiated work stoppages,
including strikes, which could adversely affect our results of
operations and cash flows;
-- negative outcomes of litigation or threatened litigation or
governmental proceedings may increase our costs or limit our
ability to conduct our operations;
-- possible errors or problems in connection with the
implementation and deployment of new information technology
systems may decrease our efficiencies and increase our costs
to operate;
-- the adoption of new accounting standards or interpretations
may cause fluctuations in quarterly results of operations or
adversely impact our results of operations; and
-- the reduction or elimination of our dividend or share
repurchase program or 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.
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, 2005.
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-------------------------
2006 2005
------------ ------------
Operating revenues $3,229 $3,038
------------ ------------
Costs and expenses:
Operating 2,100 2,044
Selling, general and administrative 368 330
Depreciation and amortization 328 321
Restructuring - -
Asset impairments and unusual items (2) (23)
------------ ------------
2,794 2,672
------------ ------------
Income from operations 435 366
------------ ------------
Other income (expense):
Interest expense, net (136) (116)
Interest income 9 6
Equity in net losses of unconsolidated
entities (8) (26)
Minority interest (12) (10)
Other, net 1 -
------------ ------------
(146) (146)
------------ ------------
Income before income taxes 289 220
Provision for income taxes 103 70
------------ ------------
Net income $186 $150
============ ============
Basic earnings per common share $0.34 $0.26
============ ============
Diluted earnings per common share $0.34 $0.26
============ ============
Basic common shares outstanding 546.2 568.8
============ ============
Diluted common shares outstanding 551.0 572.8
============ ============
Cash dividends declared per common share
(1st quarter 2006 dividend of $0.22 per
share declared in December 2005, paid in
March 2006) $- $0.20
============ ============
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-------------------------
2006 2005
------------ ------------
EPS Calculation:
Net income $186 $150
============ ============
Number of common shares outstanding at end
of period 546.2 568.3
Effect of using weighted average common
shares outstanding - 0.5
------------ ------------
Weighted average basic common shares
outstanding 546.2 568.8
Dilutive effect of equity-based
compensation awards, warrants and other
contingently issuable shares 4.8 4.0
------------ ------------
Weighted average diluted common shares
outstanding 551.0 572.8
============ ============
Basic earnings per common share $0.34 $0.26
============ ============
Diluted earnings per common share $0.34 $0.26
============ ============
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
March 31, December 31,
2006 2005
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $454 $666
Receivables, net 1,875 2,004
Other 1,058 781
------------ ------------
Total current assets 3,387 3,451
Property and equipment, net 11,063 11,221
Goodwill 5,352 5,364
Other intangible assets, net 144 150
Other assets 900 949
------------ ------------
Total assets $20,846 $21,135
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued liabilities,
and deferred revenues $2,504 $2,735
Current portion of long-term debt 600 522
------------ ------------
Total current liabilities 3,104 3,257
Long-term debt, less current portion 8,020 8,165
Other liabilities 3,361 3,311
------------ ------------
Total liabilities 14,485 14,733
Minority interest in subsidiaries and
variable interest entities 290 281
Stockholders' equity 6,071 6,121
------------ ------------
Total liabilities and stockholders'
equity $20,846 $21,135
============ ============
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
Quarters ended March 31,
------------------------
2006 2005
----------- -----------
Cash flows from operating activities:
Net income $186 $150
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 328 321
Other 33 26
Change in operating assets and
liabilities, net of effects of
acquisitions and divestitures 16 11
----------- -----------
Net cash provided by operating activities 563 508
----------- -----------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired (8) (87)
Capital expenditures (171) (185)
Purchases of short-term investments (784) (86)
Proceeds from sales of short-term
investments 556 96
Net receipts from restricted trust and
escrow accounts, business divestitures,
asset sales and other 54 141
----------- -----------
Net cash used in investing activities (353) (121)
----------- -----------
Cash flows from financing activities:
New borrowings 51 -
Debt repayments (87) (118)
Common stock repurchases (375) (99)
Cash dividends (121) (114)
Exercise of common stock options and
warrants 125 26
Other, net (14) (67)
----------- -----------
Net cash used in financing activities (421) (372)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents (1) 2
----------- -----------
Increase (decrease) in cash and cash
equivalents (212) 17
Cash and cash equivalents at beginning of
period 666 424
----------- -----------
Cash and cash equivalents at end of period $454 $441
=========== ===========
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
Quarters Ended
----------------------------------
March 31, December 31, March 31,
2006 2005 2005
---------- ------------ ----------
Operating Revenues by Lines of
Business
------------------------------------
Collection $2,159 $2,209 $2,057
Landfill 750 806 676
Transfer 421 444 387
Wheelabrator 218 232 202
Recycling and other 271 289 287
Intercompany (a) (590) (608) (571)
---------- ------------ ----------
Operating revenues $3,229 $3,372 $3,038
========== ============ ==========
Internal Growth of Operating
Revenues from Comparable Prior
Periods
------------------------------------
Internal growth 6.1% 4.7% 4.0%
Less: Yield changes due to
recycling commodities,
electricity (IPP) and fuel
surcharge 0.3% 1.1% 0.9%
---------- ------------ ----------
Adjusted internal growth 5.8% 3.6% 3.1%
========== ============ ==========
Acquisition Summary (b)
------------------------------------
Gross annualized revenue acquired $7 $10 $97
========== ============ ==========
Total consideration $8 $21 $100
========== ============ ==========
Cash paid for acquisitions $7 $10 $85
========== ============ ==========
Recycling Segment Supplemental
Data (c)
------------------------------------
Operating revenues $189 $198 $196
========== ============ ==========
Operating expenses $163 $171 $167
========== ============ ==========
Quarters Ended March 31,
-----------------------
2006 2005
---------- ------------
Free Cash Flow Analysis (d)
------------------------------------
Net cash provided by operating
activities $563 $508
Capital expenditures (171) (185)
Proceeds from divestitures of
businesses, net of cash divested,
and other sales of assets 18 97
---------- ------------
Free cash flow $410 $420
========== ============
(a) Intercompany revenues between lines of business are eliminated
within the Condensed Consolidated Financial Statements included
herein.
(b) Represents amounts associated with business acquisitions
consummated during the indicated periods.
(c) Information provided is after the elimination of intercompany
revenues and related expenses.
(d) 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.
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
Quarters Ended
----------------------------------
March 31, December 31, March 31,
2006 2005 2005
---------- ------------ ----------
Balance Sheet Data
------------------------------------
Cash, cash equivalents and short-
term investments available for use
(a) $988 $966 $441
========== ============ ==========
Debt-to-total capital ratio:
Long-term indebtedness, including
current portion $8,620 $8,687 $8,386
Total equity 6,071 6,121 5,943
---------- ------------ ----------
Total capital $14,691 $14,808 $14,329
========== ============ ==========
Debt-to-total capital 58.7% 58.7% 58.5%
========== ============ ==========
Capitalized interest $3 $5 $3
========== ============ ==========
Other Operational Data
------------------------------------
Internalization of waste, based on
disposal costs 66.7% 66.3% 65.1%
========== ============ ==========
Total landfill disposal volumes
(tons in millions) 29.9 31.7 28.0
Total waste-to-energy disposal
volumes (tons in millions) 2.0 2.1 1.9
---------- ------------ ----------
Total disposal volumes (tons in
millions) 31.9 33.8 29.9
========== ============ ==========
Active landfills 282 283 285
========== ============ ==========
Landfills reporting volume 262 262 264
========== ============ ==========
Amortization and SFAS No. 143
Expenses for Landfills Included in
Operating Groups
------------------------------------
Non - SFAS No. 143 amortization
expense $95.8 $101.2 $87.7
Amortization expense related to SFAS
No. 143 obligations (b) 13.6 9.6 14.0
---------- ------------ ----------
Total amortization expense 109.4 110.8 101.7
Accretion and other related expense 14.8 14.5 13.1
---------- ------------ ----------
Landfill amortization, accretion
and other related expense $124.2 $125.3 $114.8
========== ============ ==========
(a) The quarters ended March 31, 2006 and December 31, 2005 include
short-term investments available for use of $534 million and $300
million, respectively. There were no short-term investments
available for use in the quarter ended March 31, 2005.
(b) Reflected in the December 31, 2005 results is a reduction in
landfill amortization expense of $12.4 million. This reduction
relates primarily to adjustments to our fully accrued landfill
final capping obligations and is a result of fourth quarter
event-driven changes as well as changes in certain estimates
resulting from our annual landfill review process.
CONTACT: Waste Management, Inc., Houston
Analysts: Greg Nikkel, 713-265-1358
or
Media: Lynn Brown, 713-394-5093
Web site: http://www.wm.com
SOURCE: Waste Management, Inc.