Waste Management, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; balance-sheet comparisons are against December 31, 2022. Waste Management provides waste collection, transfer, disposal, recycling and renewable-energy services in the U.S. and Canada. Financial amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change / context |
|---|---|---|---|
| Revenue | $4,892 | $4,661 | Up 5.0% |
| Operating income | $825 | $768 | Up 7.4%; operating margin 16.9% vs. 16.5% |
| Net income attributable to WM | $533 | $513 | Up about 3.9% |
| Diluted EPS | $1.30 | $1.23 | Up about 5.7% |
| Net cash from operating activities | $1,044 | $1,258 | Down $214 |
| Capital expenditures | $660 | $418 | Included $156 for sustainability growth investments |
| Free cash flow (non-GAAP) | $395 | $845 | Down $450; defined as operating cash flow less capex plus divestiture proceeds |
| Interest expense, net | $120 | $85 | Higher borrowing and floating-rate costs |
Collection and disposal revenue increased on higher pricing and volume; total company volume contributed $55, or 1.2%, to revenue growth. Recycling and WM Renewable Energy revenue declined $141, including a $122 decline from recycling commodity prices; single-stream commodity prices averaged about 60% below the prior-year period. Higher operating costs—especially labor, repairs and maintenance, and subcontractors—raised operating expenses to 63.1% of revenue from 62.3%. Lower professional fees helped reduce selling, general and administrative expense to 9.7% of revenue from 10.5%.
Cash, debt and liquidity
- At March 31, cash and cash equivalents were $257, down from $351 at year-end 2022. Total debt was $15,370, up from $14,984; long-term debt was $15,034 and current debt was $336.
- About $2.3 billion of debt matures or has interest-rate periods expiring within 12 months. The company classified $1.9 billion as long-term based on its intent and ability to refinance; $336 million remained current.
- The $3.5 billion revolving credit facility had no borrowings, $165 million of letters of credit, and $2.5 billion of unused available capacity. Commercial paper outstanding was $861 million.
- In February, WM issued $1.25 billion of 4.625% senior notes due 2030 and 2033, receiving net proceeds of $1.24 billion. Proceeds partly repaid commercial paper and funded general corporate purposes.
- Operating cash flow fell due to working-capital changes, higher incentive compensation and interest payments, partly offset by higher collection and disposal earnings and lower cash taxes. Financing included $350 million of share repurchases and $289 million of dividends.
Outlook, management commentary and risks
- No specific full-year financial guidance is provided in the filing. Management said its strategy remains focused on operational efficiency, automation, customer service, and growth investments in recycling and WM Renewable Energy.
- Management cited continuing inflation, labor and supply-chain constraints, delayed fleet deliveries, higher interest rates, and lower commodity prices as pressures. Pricing actions, cost control and efficiency initiatives are intended to mitigate cost inflation, but the filing cautions these efforts may not fully offset it.
- WM expects about $55 million of annual pre-tax benefit from alternative-fuel tax credits through 2024. It estimated cumulative investment-tax-credit benefits of $250–$350 million, largely expected in 2024–2026; additional renewable-energy and carbon-capture benefits were not quantified.
- Landfill and environmental remediation liabilities totaled $2,897, including $2,697 for landfill obligations and $200 for remediation. WM said using the high end of its remediation estimate ranges would increase the recorded remediation liability by approximately $130.
- WM is identified as a potentially responsible party at 73 EPA Superfund sites. The recorded estimate for WM’s potential share of the San Jacinto River Waste Pits remedy was $69; the ultimate liability could differ materially.
- Other disclosed exposures include ordinary-course litigation, a securities class action concerning 2019 senior notes and the Advanced Disposal acquisition, possible multiemployer pension withdrawal liabilities, and a tax dispute for which WM deposited approximately $103 with the IRS and expects to seek a refund. Management did not expect these matters to have a material adverse effect, but outcomes remain uncertain.
- Newly highlighted risk: instability among financial institutions could affect vendors, customers, credit availability or cash flows. WM said it did not anticipate a material disruption to its revolving credit access, while noting lender failures could affect funding.
- Results are seasonal: revenue and operating results typically rise in the second and third quarters. Severe weather can disrupt operations or create temporary, potentially lower-margin cleanup work.
Important facts for investors to verify
- Whether collection and disposal pricing and volume gains continue to offset inflation and weak recycling and renewable-energy commodity markets.
- Whether operating cash flow and free cash flow recover as sustainability capital spending increases; free cash flow is a non-GAAP measure and excludes items such as dividends and debt service.
- WM’s refinancing of near-term maturities and continued access to commercial paper and revolving-credit capacity.
- Actual costs and timing of sustainability investments and whether anticipated tax-credit benefits are realized.
- Changes in landfill, remediation, Superfund, litigation, pension and IRS-related exposures, particularly given the estimation uncertainty described in the filing.