Waste Management Announces First Quarter 2007 Earnings
Earnings Per Diluted Share Increase 24%
Company Raises Full-Year 2007 Earnings Guidance
HOUSTON--(BUSINESS WIRE)--April 27, 2007--Waste Management, Inc. (NYSE:WMI) today announced financial results for its first quarter ended March 31, 2007. Net income for the quarter was $222 million, or $0.42 per diluted share, compared with $186 million, or $0.34 per diluted share in the prior year period, a 24% increase in earnings per diluted share.
Income from operations as a percent of revenue improved by 160 basis points to 15.1% in the first quarter of 2007. Revenues for the quarter were $3.19 billion as compared with $3.23 billion in the year ago period as the Company continued to execute its strategy to divest underperforming operations and accounts. First quarter 2007 revenues were up $24 million on a year-over-year basis, excluding the divestiture of underperforming operations representing $65 million of revenues.
The Company noted a $6 million after tax, or $0.01 per diluted share, restructuring charge in the current quarter's results.
"Our first quarter 2007 financial performance exceeded our expectations and demonstrated that our pricing and operational excellence programs continue to positively impact our results. 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.
"Internal revenue growth from yield in our commercial collection line of business was 5.3% in the quarter, the highest level we have achieved in the recent past. The internal revenue growth from yield in our commercial, industrial and residential lines of business was 4.8%. The execution of our strategy to review low margin accounts and either increase prices or cull those accounts from our business contributed to the lower volumes in our collection line of business. That strategy worked very well in the first quarter, as the volume loss in our collection line of business was about 5.2%, but the income from operations in our collection business grew nearly 16%.
"The internal revenue growth from yield at our landfills and transfer stations improved in the first quarter of 2007, and we expect that to continue as we implement our disposal pricing excellence program throughout the Company."
Steiner also noted, "We achieved additional positive results from improved operations during the first quarter of this year. We lowered our operating costs by $66 million during the first quarter of 2007, which is a 3.1% improvement in absolute dollars when compared with the prior year quarter. Operating expenses as a percent of revenue in the first quarter of 2007 stood at 63.8%, a 120 basis point improvement when compared to the first quarter of 2006. This marks the seventh consecutive quarter in which our year-over-year operating costs as a percent of revenue have improved. Our ongoing operational excellence initiatives in the areas of labor management, maintenance and safety were primary contributors to this improvement.
"Net cash provided by operating activities and free cash flow were both strong for the quarter. We returned $613 million to shareholders in the form of our $0.24 per share quarterly dividend and our share repurchase program. We also showed marked improvement in the recycling segment of our business due to higher recycling commodity prices and our operational improvements. Our recycling segment contributed over $0.01 per diluted share to the year-over-year improvement in net income during the first quarter of 2007."
Key Highlights for the First Quarter of 2007
-- Income from operations was $481 million, or 15.1% of revenue,
an increase of approximately 160 basis points compared with
the prior year first quarter.
-- Internal revenue growth from yield on base business of 3.3%.
Including the positive impact of higher recycling commodity
prices, internal revenue growth from yield was 5.3%.
-- Internal revenue growth from volume was a negative 4.8%. The
volume component included a 5.2% reduction in collection
volumes, but only a 1.3% reduction in landfill volumes.
-- Higher fuel surcharge revenue contributed 0.1% to internal
revenue growth.
-- Divestitures caused a 2.1% decline in revenues in the quarter,
while acquisitions contributed 0.2% to higher revenues.
-- Operating expenses were 63.8% of revenue, down from 65.0% of
revenue in the same period in 2006.
-- Selling, general and administrative expenses were 11.1% of
revenue, down from 11.4% in the first quarter of 2006.
-- Net cash provided by operating activities of $538 million,
down from $623 million in the first quarter of 2006 due to
$101 million in year-over-year changes in working capital.
Capital expenditures of $272 million, compared with $231
million in the first quarter of 2006.
-- Free cash flow(a) of $335 million, compared with $410 million
in the first quarter of 2006.
-- $613 million in cash returned to shareholders in the form of
$487 million in common stock repurchases and $126 million in
dividend payments.
-- The effective tax rate in the quarter was 33.0%, which
reflects an estimated phase-out of approximately 30% of our
Section 45K tax credits due to higher actual and projected
crude oil prices. Section 45K tax credits generated nearly an
additional $0.02 per diluted share benefit to net income in
the first quarter of 2007 compared with the first quarter of
2006.
Steiner concluded, "We are off to a very good start for the year. Our solid results during the first quarter of this year reflect the success of the continuation of our pricing and operational excellence strategies. Our first quarter success gives us confidence that we will achieve our earnings expectations for the remaining three quarters of 2007. As a result, we now project our full-year 2007 earnings to be within the range of $2.03 to $2.07 per diluted share, as adjusted for certain items(a). In the first quarter we had an expected change in working capital and higher capital expenditures, but those are due primarily to timing issues and we do not expect them to affect our ability to generate between $1.30 to $1.40 billion of free cash flow for the full-year 2007."
(a) This earnings release contains a discussion of free cash flow and projected earnings per diluted share, as adjusted for certain items, which are non-GAAP measures as defined in Regulation G of the Securities Exchange Act of 1934, as amended, and is not intended to replace the most comparable GAAP measure that is also presented in this press release. The Company reports its financial results in compliance with GAAP, but believes that also providing non-GAAP measures provides investors additional, meaningful comparisons of current results to prior periods' results by excluding items that the Company does not believe reflect its fundamental business performance.
The full year adjusted earnings of $2.03 to $2.07 per diluted share projected by the Company excludes the first quarter 2007 impact of restructuring charges of $6 million after tax. GAAP net earnings per diluted share for the remaining three quarters of the year may include restructuring charges, asset impairment and unusual items charges, gains or losses from divestitures, the resolution of income tax items, and other items that are not currently determinable, but may be significant. The full year 2007 adjusted earnings of $2.03 to $2.07 per diluted share projected today excludes the impact of any such items that may occur. GAAP net earnings per diluted share projected for the full year would require inclusion of the projected impact of any expected items. Due to the uncertainty of the amount and timing of any such items, we do not believe we have the information available to provide full year GAAP net earnings per diluted share and the quantitative reconciliation to our current adjusted earning per diluted share projection.
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, and therefore not subject to comparison. The Company includes the non-GAAP financial measure of free cash flow in its disclosures 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 acquisitions, its share repurchase program, its scheduled debt reduction and the payment of dividends.
Quantitative reconciliations of each of the non-GAAP measures presented herein to the most comparable GAAP measures are included in the accompanying schedules. 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 "1Q2007 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 3382502." 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 3382502.
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.
The Company, from time to time, provides estimates of financial and other data, comments on expectations relating to future periods and makes statements of opinion, view or belief about current and future events. Statements relating to future events and performance are "forward-looking statements." The forward-looking statements that the Company makes are the Company's expectations, opinion, view or belief at the point in time of issuance but may change at some future point in time. By issuing estimates or making statements based on current expectations, opinions, views or beliefs, the Company has no obligation, and is not undertaking any obligation, to update such estimates or statements or to provide any other information relating to such estimates or statements. Outlined below are some of the risks that the Company faces and that could affect our financial statements for 2007 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 any forward-looking statements, which speak only as of their dates. The following are some of the risks that 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 if we are
unable to control costs;
-- 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; reducing costs due to our operational improvement
programs; and divesting under-performing assets and purchasing
accretive businesses, any of which could negatively affect our
revenues and margins;
-- weather conditions cause our quarter-to-quarter results to
fluctuate, and extremely harsh weather or natural disasters
may cause us to temporarily shut down operations;
-- inflation and resulting higher interest rates as well as other
general and local economic conditions may negatively affect
the volumes of waste generated, our financing costs and other
expenses;
-- possible changes in our estimates of site remediation
requirements, final capping, closure and post-closure
obligations, compliance and regulatory developments may
increase our expenses;
-- regulations, including regulations to limit greenhouse gas
emissions, may negatively impact our business by, among other
things, restricting our operations, increasing costs of
operations or requiring additional capital expenditures;
-- if we are unable to obtain and maintain permits needed to
open, operate, and/or expand 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 and reduce our revenues;
-- fuel price increases or fuel supply shortages may increase our
expenses, including our tax expense if Section 45K credits are
phased out due to continued high crude oil prices, or restrict
our ability to operate;
-- increased costs to obtain financial assurance or the
inadequacy of our insurance coverages could negatively impact
our liquidity and increase our liabilities;
-- possible charges as a result of shut-down operations,
uncompleted development or expansion projects or other events
may negatively affect earnings;
-- fluctuating commodity prices may have negative effects on our
operating revenues and expenses;
-- trends 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;
-- efforts by labor unions to organize our employees may 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, limit our
ability to conduct or expand our operations, or limit our
ability to execute our business plans and strategies;
-- problems with the operation of our current information
technology or the development and deployment of new
information systems may decrease our efficiencies and increase
our costs to operate;
-- the adoption of new accounting standards or interpretations
may cause fluctuations in reported quarterly results of
operations or adversely impact our reported results of
operations; and
-- we may reduce or eliminate our dividend or share repurchase
program or we may need to raise additional capital if cash
flows are less than we expect or capital expenditures are more
than we expect, and we may not be able to obtain any needed
capital on acceptable terms.
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, 2006.
Waste Management, Inc.
Condensed Consolidated Statements of Operations
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-------------------------
2007 2006
------------ ------------
Operating revenues $3,188 $3,229
------------ ------------
Costs and expenses:
Operating 2,034 2,100
Selling, general and administrative 353 368
Depreciation and amortization 310 328
Restructuring 9 -
(Income) expense from divestitures, asset
impairments and unusual items 1 (2)
------------ ------------
2,707 2,794
------------ ------------
Income from operations 481 435
------------ ------------
Other income (expense):
Interest expense (135) (136)
Interest income 18 9
Equity in net losses of unconsolidated
entities (24) (8)
Minority interest (10) (12)
Other, net 1 1
------------ ------------
(150) (146)
------------ ------------
Income before income taxes 331 289
Provision for income taxes 109 103
------------ ------------
Net income $222 $186
============ ============
Basic earnings per common share $0.42 $0.34
============ ============
Diluted earnings per common share $0.42 $0.34
============ ============
Basic common shares outstanding 529.4 546.2
============ ============
Diluted common shares outstanding 534.1 551.0
============ ============
Cash dividends declared per common share
(1st quarter 2006 dividend of $0.22 per
share declared in December 2005, paid in
March 2006) $0.24 $-
============ ============
Waste Management, Inc.
Earnings Per Share
(In Millions, Except Per Share Amounts)
(Unaudited)
Quarters Ended March 31,
-------------------------
2007 2006
------------ ------------
EPS Calculation:
Net income $222 $186
============ ============
Number of common shares outstanding at end
of period 520.9 546.2
Effect of using weighted average common
shares outstanding 8.5 -
------------ ------------
Weighted average basic common shares
outstanding 529.4 546.2
Dilutive effect of equity-based
compensation awards, warrants, and other
contingently issuable shares 4.7 4.8
------------ ------------
Weighted average diluted common shares
outstanding 534.1 551.0
============ ============
Basic earnings per common share $0.42 $0.34
============ ============
Diluted earnings per common share $0.42 $0.34
============ ============
Waste Management, Inc.
Condensed Consolidated Balance Sheets
(In Millions)
March 31, December 31,
2007 2006
------------ ------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $471 $614
Receivables, net 1,772 1,858
Other 529 710
------------ ------------
Total current assets 2,772 3,182
Property and equipment, net 11,063 11,179
Goodwill 5,296 5,292
Other intangible assets, net 117 121
Other assets 795 826
------------ ------------
Total assets $20,043 $20,600
============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable, accrued liabilities,
and deferred revenues $2,218 $2,446
Current portion of long-term debt 759 822
------------ ------------
Total current liabilities 2,977 3,268
Long-term debt, less current portion 7,464 7,495
Other liabilities 3,540 3,340
------------ ------------
Total liabilities 13,981 14,103
Minority interest in subsidiaries and
variable interest entities 282 275
Stockholders' equity 5,780 6,222
------------ ------------
Total liabilities and stockholders'
equity $20,043 $20,600
============ ============
Waste Management, Inc.
Condensed Consolidated Statements of Cash Flows
(In Millions)
(Unaudited)
Quarters Ended March 31,
-------------------------
2007 2006
------------ ------------
Cash flows from operating activities:
Net income $222 $186
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 310 328
Other 13 15
Change in operating assets and
liabilities, net of effects of
acquisitions and divestitures (7) 94
------------ ------------
Net cash provided by operating activities 538 623
------------ ------------
Cash flows from investing activities:
Acquisitions of businesses, net of cash
acquired (2) (8)
Capital expenditures (272) (231)
Proceeds from divestitures of businesses
(net of cash divested) and other sales of
assets 69 18
Purchases of short-term investments (525) (784)
Proceeds from sales of short-term
investments 663 556
Net receipts from restricted trust and
escrow accounts, and other 31 36
------------ ------------
Net cash used in investing activities (36) (413)
------------ ------------
Cash flows from financing activities:
New borrowings 134 51
Debt repayments (242) (87)
Common stock repurchases (487) (375)
Cash dividends (126) (121)
Exercise of common stock options and
warrants 34 125
Other, net 42 (14)
------------ ------------
Net cash used in financing activities (645) (421)
------------ ------------
Effect of exchange rate changes on cash and
cash equivalents - (1)
------------ ------------
Decrease in cash and cash equivalents (143) (212)
Cash and cash equivalents at beginning of
period 614 666
------------ ------------
Cash and cash equivalents at end of period $471 $454
============ ============
Note: Prior year information has been reclassified to conform to 2007
presentation.
Waste Management, Inc.
Summary Data Sheet
(Dollar Amounts in Millions)
(Unaudited)
Quarters Ended
--------------------------------------
March 31, December 31, March 31,
2007 2006 2006
------------ ------------ ------------
Operating Revenues by Lines of
Business
-------------------------------
Collection $2,121 $2,176 $2,159
Landfill 720 775 750
Transfer 389 433 421
Wheelabrator 208 225 218
Recycling and other 292 260 271
Intercompany (a) (542) (586) (590)
------------ ------------ ------------
Operating revenues $3,188 $3,283 $3,229
============ ============ ============
Internal Growth of Operating
Revenues from Comparable Prior
Periods
-------------------------------
Internal growth 0.7% -1.3% 6.1%
Less: Yield changes due to
recycling commodities,
electricity (IPP), fuel
surcharge and mandated
fees 2.2% 0.2% 0.3%
------------ ------------ ------------
Adjusted internal growth -1.5% -1.5% 5.8%
============ ============ ============
Acquisition Summary (b)
-------------------------------
Gross annualized revenue
acquired $2 $- $7
============ ============ ============
Total consideration $1 $- $8
============ ============ ============
Cash paid for acquisitions $1 $- $7
============ ============ ============
Recycling Segment Supplemental
Data (c)
-------------------------------
Operating revenues $210 $182 $189
============ ============ ============
Operating expenses $177 $160 $163
============ ============ ============
Quarters Ended March 31,
-------------------------
2007 2006
------------ ------------
Free Cash Flow Analysis (d)(e)
-------------------------------
Net cash provided by operating
activities $538 $623
Capital expenditures (272) (231)
Proceeds from divestitures of
businesses (net of cash
divested) and other sales of
assets 69 18
------------ ------------
Free cash flow $335 $410
============ ============
(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) Prior year information has been reclassified to conform to 2007
presentation.
(e) 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,
2007 2006 2006
------------ ------------ ------------
Balance Sheet Data
-------------------------------
Cash, cash equivalents and
short-term investments
available for use (a) $517 $798 $988
============ ============ ============
Debt-to-total capital ratio:
Long-term indebtedness,
including current portion $8,223 $8,317 $8,620
Total equity 5,780 6,222 6,071
------------ ------------ ------------
Total capital $14,003 $14,539 $14,691
============ ============ ============
Debt-to-total capital 58.7% 57.2% 58.7%
============ ============ ============
Capitalized interest $4 $7 $3
============ ============ ============
Other Operational Data
-------------------------------
Internalization of waste, based
on disposal costs 66.2% 66.7% 66.7%
============ ============ ============
Total landfill disposal volumes
(tons in millions) 27.6 29.9 29.9
Total waste-to-energy disposal
volumes (tons in millions) 1.8 2.0 2.0
------------ ------------ ------------
Total disposal volumes
(tons in millions) 29.4 31.9 31.9
============ ============ ============
Active landfills 281 283 282
============ ============ ============
Landfills reporting volume 263 264 262
============ ============ ============
Amortization and SFAS No. 143
Expenses for Landfills
Included in Operating Groups
-------------------------------
Non - SFAS No. 143 amortization
expense $91.4 $98.6 $95.8
Amortization expense related to
SFAS No. 143 obligations 13.2 11.2 13.6
------------ ------------ ------------
Total amortization expense
(b) 104.6 109.8 109.4
Accretion and other related
expense 17.7 18.4 14.8
------------ ------------ ------------
Landfill amortization,
accretion and other
related expense $122.3 $128.2 $124.2
============ ============ ============
(a) The quarters ended March 31, 2007, December 31, 2006, and March
31, 2006 include short-term investments available for use of $46
million, $184 million, and $534 million, respectively.
(b) During the quarter ended December 31, 2006, there was a reduction
of $6.4 million in amortization expense primarily due to changes
in final capping estimates resulting from our annual landfill
review process.
Waste Management, Inc.
Reconciliation of Free Cash Flow
(In Millions)
(Unaudited)
Full Year 2007 Free Cash Flow Reconciliation
Scenarios (a) Scenario 1 Scenario 2
---------- ----------
Net cash provided by operating activities $2,300 $2,600
Capital expenditures (1,250) (1,380)
Proceeds from divestitures of businesses
(net of cash divested) and other sales of
assets 250 180
---------- ----------
Free cash flow $1,300 $1,400
========== ==========
(a) The table above illustrates two scenarios that would result in
Free cash flow meeting the ends of our projected Free cash flow
range. The amounts used in the reconciliation are not necessarily
indicative of our expectations for those line items.
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.