Waste Management, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; financial amounts below are in millions of dollars unless noted. Waste Management provides collection, transfer, disposal, recycling and resource-recovery services, primarily in the U.S. and Canada.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $4,661 | $4,112 | +13.4% |
| Operating income | $768 | $650 | +18.2% |
| Operating margin | 16.5% | 15.8% | +0.7 percentage points |
| Net income attributable to Waste Management | $513 | $421 | +21.9% |
| Diluted EPS | $1.23 | $0.99 | +$0.24 |
| Operating cash flow | $1,258 | $1,120 | +$138 |
| Free cash flow (non-GAAP) | $845 | $865 | -$20 |
| Capital expenditures | $418 | $270 | +$148 |
Revenue growth reflected higher collection and disposal yield ($197), recycling revenue ($116), fuel surcharges and other revenue ($90), and volume ($148). Collection and disposal volumes increased 4.2%; average recycling commodity prices at the company’s facilities were 60% higher year over year. Collection and disposal yield rose 5.5% overall, including 6.7% for collection.
Solid Waste operating income increased to $1,080 from $928: East Tier reported $531 and West Tier $549. The company attributed improvement to collection and disposal growth and stronger recycling profitability. Reported operating expenses rose to 62.3% of revenue from 61.1%; higher fuel, labor, maintenance, subcontracting and commodity-related costs offset some operating gains. SG&A declined as a share of revenue to 10.5% from 11.1%.
Cash, debt and liquidity
At March 31, 2022, cash and cash equivalents were $155, total debt was $13,487, and current liabilities were $3,806. Long-term debt was $13,052 and current debt $435. Total restricted funds were $522, including $80 classified in other current assets; restricted funds are not equivalent to freely available cash.
The company reported approximately $3.0 billion of debt maturities or rate-period expirations within 12 months. It classified $2.6 billion as long-term based on its intent and ability to refinance, supported by forecast capacity under its $3.5 billion revolving facility. At quarter end, the facility had no direct borrowings, but supported $1.7 billion of commercial paper and $166 million of letters of credit, leaving $1.6 billion of available capacity. Commercial paper borrowings were $1.689 billion.
Financing cash flows included $250 million of share repurchases and $275 million of dividends. The quarterly dividend was $0.65 per share, up from $0.575 in Q1 2021. The company reported $1.25 billion of remaining share-repurchase authorization at quarter end.
Outlook, management commentary and risks
No specific full-year financial guidance is provided in the supplied filing text. Management said it was encouraged by Q1 results and focused on pricing, cost control, customer service, labor productivity, digital investment and sustainability-related growth. The filing describes seasonal patterns, with revenue and results typically higher in the second and third quarters.
- Management cited labor availability, wage adjustments, overtime and training, inflation, supply-chain disruption and higher fuel prices as pressures on costs and margins. Contract price-escalation lookbacks and multi-year agreements can delay recovery of inflation.
- Commodity prices affect both revenue and costs; recycling prices were favorable in Q1, while recycling brokerage rebates and higher diesel costs also pressured operating expenses.
- Other stated risks include economic and volume changes, competition, severe weather and climate events, environmental regulation and permitting, cybersecurity and technology execution, litigation, and geopolitical disruption, including impacts related to Russia’s invasion of Ukraine.
- Landfill and environmental remediation liabilities totaled $2,566, including $216 of environmental remediation liabilities. The company’s estimated potential share of the proposed San Jacinto River Waste Pits remedy rose by $17 to $70; ultimate responsibility remains uncertain. The filing says using the high end of estimated remediation ranges would increase aggregate potential liability by approximately $140.
- The company was identified as a potentially responsible party at 73 EPA Superfund-listed locations. Management stated it did not expect known contingencies or current litigation to have a material adverse effect, while noting that environmental and litigation outcomes are uncertain.
A $17 environmental-remediation charge was recorded in Q1 2022. Q1 2021 also included $17 of net charges, consisting of loss-contingency and asset-impairment charges partly offset by a divestiture gain. The effective tax rate increased to 23.5% from 22.7%. The company implemented a new finance and general-ledger system during the quarter; management said the control changes were not material and disclosure controls were effective.
Most important facts for investors to verify
- Whether pricing and volume growth continue to offset labor, fuel, maintenance and other inflationary costs, including any lag in contractual price recovery.
- Whether operating cash flow converts into free cash flow as capital spending rises, particularly for recycling and renewable-energy investments.
- How the company refinances or otherwise addresses the approximately $3.0 billion of near-term maturities and rate-period expirations, and whether revolving-facility capacity remains adequate.
- Changes in environmental remediation estimates, especially the San Jacinto matter and the potential additional exposure described in the filing.
- Progress on recycling, renewable-energy, digital and ERP initiatives, and whether expected operational and financial benefits materialize.