Waste Management, Inc. — FY 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual 10-K; the supplied filing text does not provide standalone fourth-quarter results. Amounts below are in U.S. dollars unless stated otherwise.
Business context and reporting
Waste Management (NYSE: WM) provides collection, transfer, disposal, recycling and renewable-energy services across the U.S. and Canada. Its network included 263 landfills, 332 transfer stations and 102 recycling facilities at year-end. Beginning in Q4 2023, management changed segment reporting to four reportable segments: East Tier, West Tier, Recycling Processing and Sales, and WM Renewable Energy; prior-period information was reclassified for comparability.
Financial performance and liquidity
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Revenue | $20.426 billion | $19.698 billion | +3.7% |
| Income from operations | $3.575 billion | $3.365 billion | +6.2% |
| Operating margin | 17.5% | 17.1% | +0.4 percentage points |
| Net income attributable to WM | $2.304 billion | $2.238 billion | +2.9% |
| Diluted EPS | $5.66 | $5.39 | +5.0% |
| Operating cash flow | $4.719 billion | $4.536 billion | +4.0% |
| Capital expenditures | $2.895 billion | $2.587 billion | +11.9% |
| Free cash flow | $1.902 billion | $1.976 billion | -3.7% |
Free cash flow is a non-GAAP measure defined by the company as operating cash flow less capital expenditures plus divestiture proceeds. The company cautions it excludes certain required or committed uses, including dividends and debt service.
Revenue growth was led by higher Collection and Disposal pricing, acquisitions and increased volumes. Collection and Disposal average yield increased 5.4%; company-wide volume contributed 0.8% growth. Lower recycling commodity prices and lower fuel surcharge revenue partly offset these gains. Operating expenses rose to $12.606 billion, but declined to 61.7% of revenue from 62.4%, while SG&A declined to 9.4% of revenue from 9.8%.
Average single-stream recycling commodity prices fell 40% year over year, reducing recycling revenue attributable to yield by $308 million. Recycling Processing and Sales reported an operating loss of $44 million, versus operating income of $128 million in 2022. WM Renewable Energy operating income fell to $79 million from $132 million, reflecting lower energy prices and RIN values and higher project-related costs. Collection and Disposal operating income increased to $4.821 billion from $4.360 billion.
Interest expense, net rose to $500 million from $378 million; the effective tax rate increased to 24.7% from 23.2%. Year-end cash and cash equivalents were $458 million. Total debt was $16.229 billion, compared with $14.984 billion a year earlier. The company had $2.5 billion of unused availability under its $3.5 billion revolving credit facility and no direct borrowings under that facility; $859 million of commercial paper and $180 million of letters of credit were supported by it. Approximately $2.8 billion of debt had maturities or interest-rate resets within 12 months, of which $2.4 billion was classified as long-term based on management’s intent and ability to refinance.
Capital allocation, outlook and management commentary
Management cited strong operational execution, pricing, cost controls and continued investment in automation and growth. Capital expenditures were $2.895 billion; the company returned $2.438 billion to shareholders through dividends and share repurchases. It repurchased $1.3 billion of shares in 2023 and authorized up to $1.5 billion in future repurchases. The Board expected to raise the quarterly dividend from $0.70 to $0.75 per share in 2024, subject to declaration.
The company expects to invest $2.8 billion to $2.9 billion in recycling and renewable-energy growth projects over 2022–2026, including $1.325 billion invested in 2022 and 2023. Management described recycling commodity prices as beginning to improve in Q4 2023, while noting continued volatility. The filing does not provide a clear full-year 2024 revenue or earnings guidance figure.
The company estimates $250 million to $350 million of cumulative investment tax credit benefits under the Inflation Reduction Act, much of which it anticipates realizing in 2024–2026; proposed IRS rules could limit or eliminate some or all of that benefit. Alternative-fuel credits provide an estimated $55 million annual pre-tax benefit for 2022–2024. Management also expects to continue growth investments in RNG and recycling, subject to market, regulatory, permitting and execution conditions.
Risks, contingencies and unusual items
- Impairments: FY 2023 included $243 million of net charges from divestitures, asset impairments and unusual items, including a $168 million goodwill impairment in recycling, $107 million of impairments of certain other investments and a $17 million increase in an environmental-remediation liability. The recycling impairment reflected a longer-than-anticipated ramp toward scale and profitability.
- Environmental exposure: Landfill closure, post-closure and remediation obligations were $3.062 billion at year-end, including $2.853 billion of landfill liabilities and $209 million of environmental remediation liabilities. The company is a potentially responsible party at 73 Superfund sites. PFAS regulation may increase remediation, compliance and litigation costs; the company noted proposed federal rules and differing state standards.
- Commodity and policy sensitivity: Recycling prices, energy prices, RINs and renewable-fuel credit policies can materially affect results. Litigation or future rulemaking could alter renewable-energy economics. The EPA identified landfill methane as an enforcement focus for 2024–2027.
- Costs and operations: Inflation, labor availability and costs, repair and maintenance, subcontractor charges, supply-chain delays, fuel prices and service disruptions may pressure margins. Pricing recovery can lag cost increases under some contracts.
- Permits and landfill capacity: Delays, opposition or inability to obtain landfill permits or expansions could raise disposal costs or constrain operations. Estimated weighted-average landfill life was approximately 38 years on permitted airspace, or 39 years including expansion airspace, which depends on permits and projections.
- Debt and interest rates: Higher rates could increase refinancing costs. A 100-basis-point increase in rates on variable-rate debt was estimated to increase 2024 interest expense by $18 million. The company reported compliance with debt covenants at year-end.
- Other contingencies: The company is pursuing a refund of an approximately $103 million IRS deposit related to a disputed 2017 tax matter. A securities class action concerning 2019 senior notes remained pending; the company stated it would defend the case and did not expect a material adverse effect. Other legal, insurance and pension exposures are described, with outcomes potentially uncertain.
- Assurance: The auditor issued unqualified opinions on the financial statements and internal control over financial reporting; management and the auditor concluded internal controls were effective at year-end.
Important facts for investors to verify
- Whether recycling commodity prices and RIN/energy markets recover, and how that affects segment profitability and cash flow.
- Execution, timing, capital needs and returns on the planned recycling and renewable-energy investments, including realization of IRA tax credits.
- Refinancing and interest-rate outcomes for debt with near-term maturities or rate resets, and the company’s leverage and liquidity position.
- Changes in PFAS and methane regulation, environmental remediation estimates, landfill permitting and expansion assumptions.
- Whether free cash flow can support planned investment, dividends and repurchases while debt and closure obligations remain substantial.
- Progress on labor productivity and automation, given inflation, hiring and retention pressures and the 2023 increase in the employee injury rate (TRIR 3.08 versus 3.02 in 2022).