Waste Management, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are in U.S. dollars; financial amounts are in millions unless stated otherwise. Waste Management provides collection, transfer, disposal, recycling and related environmental services across the U.S. and Canada. Results include Advanced Disposal, acquired October 30, 2020, so comparisons reflect both business growth and the acquisition.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Operating revenue | $4,665 | $3,861 | $13,253 | $11,151 |
| Income from operations | $806 | $680 | $2,247 | $1,780 |
| Operating margin | 17.3% | 17.6% | 17.0% | 16.0% |
| Net income attributable to WM | $538 | $390 | $1,310 | $1,058 |
| Diluted EPS | $1.28 | $0.92 | $3.09 | $2.49 |
| Cash from operations | $1,184 | $1,029 | $3,347 | $2,650 |
| Free cash flow | $773 | $691 | $2,287 | $1,432 |
Q3 revenue increased 20.8%; management attributed the increase to Advanced Disposal, stronger volumes and yield in collection and disposal, and higher recycling commodity prices. Organic volume rose 3.8% and average yield increased 9.1% in the quarter. Revenue from recycling rose $180 million, with market prices for commodities at WM facilities approximately 160% above the prior-year quarter.
Operating income increased, but Q3 operating margin declined 0.3 percentage points as labor and other inflation, supply-chain costs, and commodity-related impacts—especially in recycling brokerage—pressured expenses. The nine-month margin improved year over year. Management cited stronger collection, disposal and recycling results, partly offset by higher costs and acquired-asset depreciation and amortization.
Cash flow, debt and liquidity
- Nine-month operating cash flow was $3,347 million; capital expenditures were $1,130 million, and free cash flow was $2,287 million. Free cash flow is a company-defined non-GAAP measure and excludes items such as dividends and debt service.
- At September 30, cash and cash equivalents were $116 million, total debt was $13,047 million, and total liabilities were $21,667 million. Cash was down from $553 million at year-end 2020; debt was down from $13,810 million.
- The company reported $2.8 billion of debt maturing or requiring refinancing within 12 months. It classified $2.2 billion as long-term based on its stated intent and ability to refinance; $601 million remained current. The $3.5 billion revolving facility had no direct borrowings and $1.9 billion of unused available capacity after commercial paper and letters of credit.
- During the first nine months, WM issued $950 million of lower-coupon senior notes and retired $1.3 billion of higher-coupon notes. It paid $1.0 billion for share repurchases and $730 million in dividends.
Changes, outlook and risks
- Advanced Disposal contributed to the year-over-year revenue increase and expanded WM’s footprint to approximately three million additional customers. Management reported progress integrating the acquired business; acquired operations also increased costs and depreciation and amortization.
- Q3 net income benefited from higher operating income and lower interest expense; the prior-year quarter included a $52 million loss on early extinguishment of debt. In the first nine months of 2021, WM recorded a separate $220 million debt-extinguishment loss related to refinancing.
- Management said volumes had recovered to or exceeded pre-pandemic levels in several previously affected businesses and remained optimistic about continued volume and economic recovery. The filing provides no specific numerical earnings or revenue guidance.
- Management highlighted labor scarcity, wage inflation, overtime and training costs, supply-chain disruption, higher repair and maintenance costs, and more limited and expensive third-party transportation. Contract price-escalation lags and multi-year agreements may delay recovery of inflationary costs and compress margins.
- Unusual items included a $35 million pretax gain from divesting certain non-strategic Canadian operations, a $20 million reserve charge for loss contingencies, and a $15 million landfill amortization charge following an earlier-than-expected closure decision. The company also reported $6 million of asset impairments in 2021; the prior-year nine-month period included $68 million of impairment charges.
- Landfill and environmental remediation liabilities totaled $2,506 million, including $216 million for environmental remediation. WM stated that using the high end of reasonable remediation cost ranges would increase the recorded remediation liability by approximately $135 million. It had been identified as a potentially responsible party at 73 EPA Superfund sites; the recorded estimate for its share of the San Jacinto waste-pits remedy was $53 million.
- Management did not expect known claims, guarantees or litigation to materially affect the company overall, but noted that remediation estimates and outcomes of environmental proceedings, lawsuits and self-insured claims remain uncertain. Other stated risks include regulation, permits, competition, commodity prices, weather and climate events, and cybersecurity and technology execution.
Important facts for investors to verify
- How much of revenue and earnings growth reflects underlying volume and pricing versus Advanced Disposal and unusually high recycling commodity prices.
- Whether WM can offset labor, supply-chain, fuel and other inflation through pricing and operating efficiencies, and the effect of pricing lags on margins.
- The refinancing plan and cost for the $2.8 billion of near-term maturities, including the debt classified as long-term based on expected refinancing capacity.
- Capital allocation after $1.0 billion of repurchases and $730 million of dividends in the first nine months, relative to cash, debt and planned investment needs.
- Potential changes in landfill and environmental liabilities, including the San Jacinto matter and the disclosed $135 million sensitivity to remediation estimates.