Waste Management, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the corresponding 2022 periods. Amounts are in millions of dollars except per-share data.
Business context and results
Waste Management provides collection, transfer, disposal, recycling and resource-recovery services in the U.S. and Canada, alongside landfill-gas renewable energy and other environmental services. Its Solid Waste business is reported in East and West Tiers.
- Q3 revenue: $5,198, up 2.4% from $5,075. Collection and disposal yield, acquisitions and higher volumes contributed; lower recycling and renewable-energy commodity revenues and reduced fuel surcharges partly offset growth.
- Q3 profit and margins: Operating income was $1,021, up 8.4%; operating margin rose to 19.6% from 18.6%. Net income attributable to WM was $663 versus $639; diluted EPS was $1.63 versus $1.54.
- Nine-month results: Revenue was $15,209, up 3.0%; operating income was $2,790, up 7.3%; net income attributable to WM was $1,811 versus $1,739; diluted EPS was $4.44 versus $4.18. Operating margin was 18.3% versus 17.6%.
- Q3 segment performance: Solid Waste operating income increased to $1,324 from $1,238. “Other” reported an operating loss of $13, compared with break-even a year earlier, reflecting lower renewable-energy and recycling profitability. Corporate and Other costs were $290 versus $296.
- Revenue drivers: Q3 collection and disposal average yield increased 5.0% for the business; volume added 0.5% to company revenue. Recycling and WM Renewable Energy revenues together declined $108 year over year. Single-stream recycling commodity prices averaged more than 50% lower in the first nine months.
Cash flow, investment, debt and liquidity
- Q3 cash flow: Cash from operations was $1,263 versus $1,182. Free cash flow, a non-GAAP measure, was $612 versus $432, reflecting higher operating cash flow, lower capital spending and greater divestiture proceeds.
- Nine-month cash flow: Cash from operations was $3,337 versus $3,487; capital expenditures were $1,853 versus $1,725. Free cash flow was $1,552 versus $1,780. The company defines free cash flow as operating cash flow less capital expenditures plus net divestiture proceeds; it excludes required items such as dividends and debt service.
- Capital returns: Nine-month dividends paid were $855, and share repurchases were $990 in the cash flow statement. The quarterly dividend declared was $0.70 per share, compared with $0.65 in Q3 2022. Remaining repurchase authorization at September 30 was $508.5.
- Debt and liquidity: Debt totaled $15,430 at September 30, versus $14,984 at year-end 2022. Cash and cash equivalents were $150, down from $351. The company reported $2.8 billion of unused availability under its $3.5 billion revolving credit facility, with no borrowings drawn on that facility.
- About $2.4 billion of debt was due or subject to interest-rate reset within 12 months. WM classified $2.1 billion as long-term based on its intent and ability to refinance, supported by expected credit-facility capacity; $297 million remained classified as current. Q3 interest expense was $127 versus $91; nine-month interest expense was $372 versus $269.
Management commentary, outlook and risks
- Management cited pricing, operational execution, cost discipline, automation and investment in recycling and renewable energy as strategic priorities. Inflationary labor, maintenance, repair and subcontractor costs remained pressures, although some supply-chain and cost pressures moderated in Q3.
- The filing provides no specific quantitative earnings or revenue guidance. Management said it expects $250 million to $350 million of cumulative benefit from the IRA investment tax credit provisions, with much of it anticipated in 2024–2026; additional renewable-energy and carbon-capture incentives were not quantified.
- Key risks include commodity-price volatility, inflation and wage costs, labor availability, supply-chain and transportation constraints, interest rates, economic weakness, landfill capacity and permitting, environmental regulation and remediation, severe weather, cybersecurity, and litigation. Seasonal patterns typically support higher Q2 and Q3 activity.
- Environmental remediation liabilities totaled $185 million. The company said using the high end of estimated remediation ranges would increase aggregate potential liability by approximately $120 million. A subsidiary’s recorded estimated share of the proposed San Jacinto River Waste Pits remedy was $68 million; ultimate responsibility could differ materially.
- WM was identified as a potentially responsible party at 73 Superfund sites. Management said it did not expect known contingencies to materially affect the company overall, while noting estimates and outcomes remain uncertain. A pending securities class action concerns 2019 senior notes and the Advanced Disposal acquisition; the motion to dismiss was pending.
- WM has deposited approximately $103 million with the IRS concerning a 2017 tax dispute and expects to seek a refund and litigate any denial. The filing also identifies risks related to possible pension-plan withdrawals and evolving environmental and sustainability requirements.
Important facts for investors to verify
- Whether collection and disposal pricing continues to offset inflation, and whether labor and maintenance costs ease.
- Recovery in recycling commodity prices, renewable-energy prices and renewable fuel standard credits.
- Progress and returns on sustainability capital projects, alongside elevated capital expenditure requirements.
- Availability and cost of refinancing the near-term debt, particularly the tax-exempt bonds subject to rate resets.
- Changes in environmental remediation estimates, the San Jacinto matter, and the IRS deposit and litigation outcome.
- Free cash flow trends after capital expenditures and the funding of dividends, repurchases and growth investments.