Waste Management, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; comparisons are with Q1 2023 unless otherwise noted. Dollar amounts are in millions except per-share data. Waste Management provides collection, transfer, disposal, recycling and renewable energy services across the U.S. and Canada.
Financial performance and liquidity
| Metric | Q1 2024 | Q1 2023 / prior date |
|---|---|---|
| Revenue | $5,159 | $4,892 |
| Operating income / margin | $1,016 / 19.7% | $825 / 16.9% |
| Net income attributable to Waste Management | $708 | $533 |
| Diluted EPS | $1.75 | $1.30 |
| Operating cash flow | $1,367 | $1,044 |
| Capital expenditures | $668 | $660 |
| Free cash flow (non-GAAP) | $714 | $395 |
| Cash and cash equivalents at March 31 | $322 | $458 at Dec. 31, 2023 |
| Total debt at March 31 | $16,098 | $16,229 at Dec. 31, 2023 |
Operating expenses were $3,140, or 60.9% of revenue, versus $3,086, or 63.1%. SG&A was $491, or 9.5% of revenue, versus $476, or 9.7%. Net interest expense increased to $130 from $120. The effective tax rate declined to 18.6% from 23.6%.
Operating cash flow increased by $323, attributed mainly to higher earnings, favorable working-capital changes and lower incentive compensation payments, partly offset by higher cash interest. Free cash flow is the company-defined non-GAAP measure of operating cash flow less capital expenditures plus divestiture proceeds; it excludes items including dividends and debt service.
Debt was $16.1 billion, including $750 million of commercial paper. The company reported $2.6 billion of unused availability under its $3.5 billion revolving credit facility, after commercial paper and letters of credit. Approximately $3.1 billion of debt matures or has rate periods expiring within 12 months; $2.8 billion is classified as long-term based on management’s stated intent and ability to refinance.
Changes and operating drivers
- Revenue rose 5.5%, driven primarily by pricing/yield in Collection and Disposal and improved recycling commodity prices. Lower fuel-related surcharges and weaker industrial and residential volumes partly offset growth.
- Collection and Disposal revenue increased to $4,716 from $4,523; segment operating income rose to $1,279 from $1,064. East Tier operating income was $654 versus $531; West Tier was $627 versus $531.
- Collection and Disposal average yield increased 5.1%. Recycling commodity prices were 57% higher year over year, contributing to higher recycling revenue, but also higher recycling rebates and cost of goods sold.
- Volumes were approximately flat overall. Special-waste and WMSBS activity grew, offset by lower industrial activity, intentionally reduced low-margin residential volumes, and lower construction-and-demolition landfill volumes compared with prior-year hurricane cleanup.
- Operating income increased 23.2%; management cited pricing, operational efficiency and cost controls. Lower labor, maintenance and fuel costs helped offset inflation, subcontractor costs and higher recycling-related costs.
- Shareholder returns included $307 million of dividends and $250 million of repurchases in the quarter. The quarterly dividend was $0.75 per share, up from $0.70.
Outlook, commentary and risks
Management said its strategy remains focused on customer service, pricing, automation, cost efficiency and growth investments in recycling and renewable energy. It reported ongoing inflation and high interest rates, labor and transportation challenges, and margin pressure in commodity-driven businesses. Recycling prices improved in late 2023 and Q1 2024, but management cautioned that commodity-driven results may fluctuate. Results are typically seasonally stronger in summer; severe weather can disrupt operations or supply chains, while storms and other events can also temporarily increase waste volumes, sometimes at lower margins.
The filing provides no consolidated revenue or EPS guidance. Management expects approximately $145 million of 2024 investment tax credits, based on completing five new RNG facilities by year-end, and estimates cumulative investment tax credit benefits of $250–$350 million, largely during 2024–2026. Proposed IRS regulations could call into question eligibility for some or all of these benefits; the company is seeking changes, with no assurance of success. It also cited approximately $55 million of annual pre-tax alternative-fuel tax-credit benefits for 2022–2024.
Environmental remediation liabilities totaled $211 million. The company disclosed PRP status at 73 EPA Superfund sites. At the San Jacinto River Waste Pits site, MIMC’s recorded liability was $85 million; the EPA raised serious deficiencies in the remedial design, and ultimate costs could differ materially from the estimate. The filing also describes a securities class action proceeding to discovery; the company intends to defend it and believes any recovery above deductibles is insured. Management does not expect known contingencies to have a material adverse effect, but remediation estimates and outcomes remain uncertain. No material changes to previously reported risk factors were disclosed. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Whether the RNG projects meet completion timelines and qualify for the expected tax credits under final IRS regulations.
- Whether pricing and cost efficiencies continue to offset inflation, labor, subcontractor and other operating cost pressures.
- Trends in recycling commodity prices, fuel surcharges, collection volumes and margins in recycling and renewable energy.
- Refinancing and rate-period outcomes for the approximately $3.1 billion of near-term maturities and expirations.
- Developments in the San Jacinto River Waste Pits remedy, other environmental matters and the securities litigation.
- Free cash flow alongside capital spending, dividends, repurchases and debt service; free cash flow is not a GAAP measure and excludes committed cash uses.