Date: April 29, 2008
Source: Waste Management, Inc.
Company Posts Higher Earnings and Cash from Operations and Expresses Confidence in Achieving Full Year 2008 Earnings Guidance
Waste Management, Inc. (NYSE: WMI) today announced financial results for its first quarter ended March 31, 2008. Net income for the quarter was $241 million, or $0.48 per diluted share, compared with $238 million, or $0.45 per diluted share in the prior year period.
Revenue for the first quarter of 2008 was $3.27 billion as compared with $3.19 billion in the year ago period, an increase of 2.4%. Income from operations as a percent of revenue improved by 50 basis points from the prior year period to 15.6% in the first quarter of 2008.
The Company noted several items that impacted the results in the 2007 and 2008 first quarters. Results in the first quarter of 2008 included a net $0.01 per diluted share benefit due to a $6 million benefit in net income from income tax audit settlements. Results in the first quarter of 2007 included a net $0.02 per diluted share benefit consisting of a $16 million benefit in net income from income tax audit settlements and a $6 million reduction in net income due to restructuring charges.
Excluding those items, earnings would have been $0.47 per diluted share in the first quarter of 2008 compared with $0.43 per diluted share in the first quarter of 2007. This is a 9.3% increase in adjusted earnings per diluted share. (a)
“We started the year on a solid note 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 9.3% growth in adjusted earnings per share is an impressive accomplishment in the current business environment. It is even more impressive when you consider that we had a $0.02 per diluted share benefit in Section 45K tax credits in the first quarter of 2007. The Section 45K program expired at the end of 2007. Excluding that benefit, year-over-year earnings would have grown 14.6% in the first quarter of 2008. (a)
“We grew revenue by 2.4% during the first quarter of 2008, due mainly to our disciplined approach to pricing, which led to internal revenue growth from yield on base business of 3.2%. We also benefited from higher recycling commodity prices, which contributed an additional 2.3% to revenue growth. Partially offsetting these increases were declines in internal revenue growth from volumes of 3.9%, mostly in the collection lines of business, as well as the carry-.over impact of divestitures of certain under-performing operations, which occurred principally during the 2007 fiscal year.
“We overcame several challenges during the first quarter of 2008, including the impact of sharply rising diesel fuel prices, a slow economy and harsh winter weather in the Midwest. Higher diesel fuel prices caused an approximate $0.01 per share reduction in earnings during the quarter because the increase in our fuel surcharge revenue lagged the sharp rise in diesel fuel prices; and this also caused an approximate 50 basis point decline in income from operations as a percent of revenue. Excluding this negative 50 basis point impact, our income from operations as a percent of revenue increased by 100 basis points in the first quarter of this year compared with the prior year period, in line with our expectations. (a) We estimate that the winter weather conditions caused a $0.01 per share decline in net income during the first quarter of this year.”
Steiner continued, “We overcame a number of challenges by continuing our focus on pricing and operational excellence and executing our strategy of reviewing low margin accounts and increasing prices or culling that business. And we again produced strong free cash flow that we returned to shareholders in the form of our dividend and share repurchases. We generated $561 million in net cash from operating activities and $362 million of free cash flow during the quarter.” (a)
Key Highlights for the First Quarter of 2008
Income from operations was $511 million, or 15.6% of revenue, an increase of 50 basis points compared with the prior year first quarter. Excluding the impacts of higher diesel fuel prices on fuel surcharge revenue and operating expenses, income from operations as a percent of revenue was 16.1% in the first quarter of 2008, an increase of 100 basis points compared with the prior year first quarter. (a)
Internal revenue growth from yield on base business was 3.2%. Including the positive impact of higher recycling commodity prices and higher fuel surcharge revenue, internal revenue growth from yield was 6.8%.
Internal revenue growth from volume was a negative 3.9%.
Divestitures caused a 2.0% decline in revenue in the quarter, while acquisitions contributed 0.8% to higher revenue. Foreign currency translation contributed an additional 0.8% to revenue growth.
Operating expenses were 64.1% of revenue, up from 63.8% of revenue in the same period in 2007. Excluding the impacts of higher diesel fuel prices and higher recycling commodity prices on both operating expenses and revenue, operating expenses were 63.0% of revenue in the first quarter of 2008, or an 80 basis point improvement compared with the prior year period. (a)
Depreciation and amortization expenses were 9.1% of revenue, down from 9.7% of revenue in the first quarter of 2007, due mainly to lower volumes.
Net cash provided by operating activities was $561 million compared with $538 million in the prior year quarter. Capital expenditures were $213 million, compared with $272 million in the prior year quarter.
Free cash flow was $362 million, compared with $335 million in the prior year quarter. (a)
We returned $414 million to shareholders in the form of $281 million in common stock repurchases, or approximately 9 million shares, and $133 million in dividend payments.
Steiner concluded, “Despite the slow economy, we are off to a good start for the year. We continued to execute our disciplined pricing and cost control strategies and we overcame the.challenges during the quarter. Our success during the first quarter gives us confidence that we can achieve our previously projected full-year earnings of $2.19 to $2.23 per diluted share and free cash flow of $1.4 billion.” (a)
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 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 www.wm.com, and select “Earnings 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 39562966.” 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 1:00 p.m. Eastern time on April 29th through 5:00 p.m. Eastern time on May 13th. 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 or (706) 645-9291 and enter reservation code 39562966.
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.
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Millions, Except Share and Par Value Amounts)
|
March 31, |
December 31, |
|||||||
| 2008 | 2007 | |||||||
| (Unaudited) | ||||||||
|
ASSETS | ||||||||
|
Current assets: |
||||||||
|
Cash and cash equivalents |
$ | 466 | $ | 348 | ||||
|
Accounts receivable, net of allowance for doubtful accounts of
$46 at both dates |
1,605 | 1,674 | ||||||
|
Other receivables |
211 | 218 | ||||||
|
Parts and supplies |
107 | 103 | ||||||
|
Deferred income taxes |
46 | 51 | ||||||
|
Other assets |
130 | 86 | ||||||
|
Total current assets |
2,565 | 2,480 | ||||||
|
Property and equipment, net of accumulated depreciation and
amortization of $12,976 and $12,844, respectively |
11,297 | 11,351 | ||||||
|
Goodwill |
5,411 | 5,406 | ||||||
|
Other intangible assets, net |
125 | 124 | ||||||
|
Other assets |
786 | 814 | ||||||
|
Total assets |
$ | 20,184 | $ | 20,175 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities: |
||||||||
|
Accounts payable |
$ | 525 | $ | 656 | ||||
|
Accrued liabilities |
1,126 | 1,151 | ||||||
|
Deferred revenues |
453 | 462 | ||||||
|
Current portion of long-term debt |
490 | 329 | ||||||
|
Total current liabilities |
2,594 | 2,598 | ||||||
|
Long-term debt, less current portion |
8,229 | 8,008 | ||||||
|
Deferred income taxes |
1,422 | 1,411 | ||||||
|
Landfill and environmental remediation liabilities |
1,324 | 1,312 | ||||||
|
Other liabilities |
697 | 744 | ||||||
|
Total liabilities |
14,266 | 14,073 | ||||||
|
Minority interest in subsidiaries and variable interest entities |
307 | 310 | ||||||
|
Commitments and contingencies |
||||||||
|
Stockholders’ equity: |
||||||||
|
Common stock, $0.01 par value; 1,500,000,000 shares
authorized; 630,282,461 shares issued |
6 | 6 | ||||||
|
Additional paid-in capital |
4,527 | 4,542 | ||||||
|
Retained earnings |
5,187 | 5,080 | ||||||
|
Accumulated other comprehensive income |
207 | 229 | ||||||
|
Treasury stock at cost, 137,892,025 and 130,163,692 shares,
respectively |
(4,316 | ) | (4,065 | ) | ||||
|
Total stockholders’ equity |
5,611 | 5,792 | ||||||
|
Total liabilities and stockholders’ equity |
$ | 20,184 | $ | 20,175 | ||||
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Millions, Except Per Share Amounts)
(Unaudited)
|
Three Months Ended |
||||||||
| March 31, | ||||||||
| 2008 | 2007 | |||||||
|
Operating revenues |
$ | 3,266 | $ | 3,188 | ||||
|
Costs and expenses: |
||||||||
|
Operating |
2,092 | 2,034 | ||||||
|
Selling, general and administrative |
368 | 353 | ||||||
|
Depreciation and amortization |
297 | 310 | ||||||
|
Restructuring |
— | 9 | ||||||
|
(Income) expense from divestitures, asset impairments and
unusual items |
(2 | ) | 1 | |||||
| 2,755 | 2,707 | |||||||
|
Income from operations |
511 | 481 | ||||||
|
Other income (expense): |
||||||||
|
Interest expense |
(122 | ) | (135 | ) | ||||
|
Interest income |
5 | 18 | ||||||
|
Equity in net losses of unconsolidated entities |
(2 | ) | (24 | ) | ||||
|
Minority interest |
(7 | ) | (10 | ) | ||||
|
Other, net |
— | 1 | ||||||
| (126 | ) | (150 | ) | |||||
|
Income before income taxes |
385 | 331 | ||||||
|
Provision for income taxes |
144 | 93 | ||||||
|
Net income |
$ | 241 | $ | 238 | ||||
|
Basic earnings per common share |
$ | 0.49 | $ | 0.45 | ||||
|
Diluted earnings per common share |
$ | 0.48 | $ | 0.45 | ||||
|
Cash dividends declared per common share |
$ | 0.27 | $ | 0.24 | ||||
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Millions)
(Unaudited)
|
Three Months Ended |
||||||||
| March 31, | ||||||||
| 2008 | 2007 | |||||||
|
Cash flows from operating activities: |
||||||||
|
Net income |
$ | 241 | $ | 238 | ||||
|
Adjustments to reconcile net income to net cash provided by
operating activities: |
||||||||
|
Provision for bad debts |
14 | 8 | ||||||
|
Depreciation and amortization |
297 | 310 | ||||||
|
Deferred income tax provision |
17 | 3 | ||||||
|
Minority interest |
7 | 10 | ||||||
|
Equity in net losses of unconsolidated entities, net of
distributions |
— | 7 | ||||||
|
Net gain on disposal of assets |
(5 | ) | (9 | ) | ||||
|
Effect of (income) expense from divestitures, asset impairments
and unusual items |
(2 | ) | 1 | |||||
|
Excess tax benefits associated with equity-based transactions |
(2 | ) | (7 | ) | ||||
|
Change in operating assets and liabilities, net of effects of
acquisitions and divestitures: |
||||||||
|
Receivables |
61 | 51 | ||||||
|
Other current assets |
(38 | ) | (35 | ) | ||||
|
Other assets |
4 | 13 | ||||||
|
Accounts payable and accrued liabilities |
(22 | ) | (31 | ) | ||||
|
Deferred revenues and other liabilities |
(11 | ) | (21 | ) | ||||
|
Net cash provided by operating activities |
561 | 538 | ||||||
|
Cash flows from investing activities: |
||||||||
|
Acquisitions of businesses, net of cash acquired |
(69 | ) | (2 | ) | ||||
|
Capital expenditures |
(213 | ) | (272 | ) | ||||
|
Proceeds from divestitures of businesses (net of cash divested)
and other sales of assets |
14 | 69 | ||||||
|
Purchases of short-term investments |
— | (525 | ) | |||||
|
Proceeds from sales of short-term investments |
— | 663 | ||||||
|
Net receipts from restricted trust and escrow accounts |
77 | 34 | ||||||
|
Other |
(9 | ) | (3 | ) | ||||
|
Net cash used in investing activities |
(200 | ) | (36 | ) | ||||
|
Cash flows from financing activities: |
||||||||
|
New borrowings |
803 | 134 | ||||||
|
Debt repayments |
(544 | ) | (242 | ) | ||||
|
Common stock repurchases |
(281 | ) | (487 | ) | ||||
|
Cash dividends |
(133 | ) | (126 | ) | ||||
|
Exercise of common stock options and warrants |
10 | 34 | ||||||
|
Excess tax benefits associated with equity-based transactions |
2 | 7 | ||||||
|
Minority interest distributions paid |
(8 | ) | (3 | ) | ||||
|
Other |
(92 | ) | 38 | |||||
|
Net cash used in financing activities |
(243 | ) | (645 | ) | ||||
|
Effect of exchange rate changes on cash and cash equivalents |
— | — | ||||||
|
Increase (decrease) in cash and cash equivalents |
118 | (143 | ) | |||||
|
Cash and cash equivalents at beginning of period |
348 | 614 | ||||||
|
Cash and cash equivalents at end of period |
$ | 466 | $ | 471 | ||||
WASTE MANAGEMENT, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(In Millions, Except Shares in Thousands)
(Unaudited)
|
Accumulated |
||||||||||||||||||||||||||||
|
Other |
||||||||||||||||||||||||||||
|
Additional |
Comprehensive |
|||||||||||||||||||||||||||
| Common Stock |
Paid-In |
Retained |
Income |
Treasury Stock | ||||||||||||||||||||||||
| Shares | Amounts | Capital | Earnings | (Loss) | Shares | Amounts | ||||||||||||||||||||||
|
Balance, December 31, 2006 |
630,282 | $ | 6 | $ | 4,513 | $ | 4,410 | $ | 129 | (96,599 | ) | $ | (2,836 | ) | ||||||||||||||
|
Net income |
— | — | — | 1,163 | — | — | — | |||||||||||||||||||||
|
Cash dividends declared |
— | — | — | (495 | ) | — | — | — | ||||||||||||||||||||
|
Equity-based compensation transactions, including dividend
equivalents, net of taxes |
— | — | 30 | (2 | ) | — | 6,067 | 182 | ||||||||||||||||||||
|
Common stock repurchases |
— | — | — | — | — | (39,946 | ) | (1,421 | ) | |||||||||||||||||||
|
Unrealized loss resulting from changes in fair values of
derivative instruments, net of taxes of $22 |
— | — | — | — | (34 | ) | — | — | ||||||||||||||||||||
|
Realized losses on derivative instruments reclassified into
earnings, net of taxes of $30 |
— | — | — | — | 47 | — | — | |||||||||||||||||||||
|
Unrealized losses on marketable securities, net of taxes of $3 |
— | — | — | — | (5 | ) | — | — | ||||||||||||||||||||
|
Translation adjustment of foreign currency statements |
— | — | — | — | 89 | — | — | |||||||||||||||||||||
|
Change in funded status of defined benefit plan liabilities, net
of taxes of $3 |
— | — | — | — | 3 | — | — | |||||||||||||||||||||
|
Cumulative effect of change in accounting principle |
— | — | — | 4 | — | — | — | |||||||||||||||||||||
|
Other |
— | — | (1 | ) | — | — | 314 | 10 | ||||||||||||||||||||
|
Balance, December 31, 2007 |
630,282 | $ | 6 | $ | 4,542 | $ | 5,080 | $ | 229 | (130,164 | ) | $ | (4,065 | ) | ||||||||||||||
|
Net income |
— | — | — | 241 | — | — | — | |||||||||||||||||||||
|
Cash dividends declared |
— | — | — | (133 | ) | — | — | — | ||||||||||||||||||||
|
Equity-based compensation transactions, net of taxes |
— | — | (15 | ) | (1 | ) | — | 1,337 | 42 | |||||||||||||||||||
|
Common stock repurchases |
— | — | — | — | — | (9,068 | ) | (293 | ) | |||||||||||||||||||
|
Unrealized gains resulting from changes in fair values of
derivative instruments, net of taxes of $4 |
— | — | — | — | 6 | — | — | |||||||||||||||||||||
|
Realized gains on derivative instruments reclassified into
earnings, net of taxes of $3 |
— | — | — | — | (5 | ) | — | — | ||||||||||||||||||||
|
Unrealized losses on marketable securities, net of taxes of $1 |
— | — | — | — | (1 | ) | — | — | ||||||||||||||||||||
|
Translation adjustment of foreign currency statements |
— | — | — | — | (22 | ) | — | — | ||||||||||||||||||||
|
Other |
— | — | — | — | — | 3 | — | |||||||||||||||||||||
|
Balance, March 31, 2008 |
630,282 | $ | 6 | $ | 4,527 | $ | 5,187 | $ | 207 | (137,892 | ) | $ | (4,316 | ) | ||||||||||||||
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