Waste Management, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report, not a standalone fourth-quarter report; quarterly results are not clearly provided in the supplied text.
Business context
Waste Management provides collection, transfer, landfill disposal, recycling and renewable-energy services across the United States and Canada. In 2021 it reported Solid Waste operations in East and West Tiers, plus Other activities. It owned or operated 260 landfills and 340 transfer stations and employed approximately 48,500 people.
The 2021 results include Advanced Disposal, acquired October 30, 2020, for only the post-acquisition portion of 2020 but a full year in 2021. This affects year-over-year comparability.
Key financial results
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $17.931B | $15.218B | +$2.713B, or 17.8% |
| Income from operations | $2.965B | $2.434B | +$531M |
| Operating margin | 16.5% | 16.0% | +0.5 percentage points |
| Net income attributable to WMI | $1.816B | $1.496B | +$320M |
| Diluted EPS | $4.29 | $3.52 | +$0.77 |
| Cash from operations | $4.338B | $3.403B | +$935M |
| Free cash flow (non-GAAP) | $2.530B | $2.656B | −$126M |
| Capital expenditures | $1.904B | $1.632B | +$272M |
| Total debt | $13.405B | $13.810B | −$405M |
Revenue growth reflected the Advanced Disposal acquisition, higher collection and disposal yield, volume recovery and strong recycling commodity prices. Recycling revenue rose $537M year over year; average market prices for recycling commodities at company facilities were approximately 115% higher than in 2020. Excluding acquisitions and divestitures, volume contributed 2.8% growth and average yield contributed 8.2%.
Operating expenses were $11.111B, or 62.0% of revenue, versus $9.341B, or 61.4%, in 2020. Higher labor, fuel, maintenance, recycling-related costs and inflation pressured costs, partly offsetting revenue growth. SG&A declined to 10.4% of revenue from 11.4%. Net margin was approximately 10.1% in 2021, calculated from reported net income and revenue.
Operating cash flow improved with earnings, acquisition contribution, lower interest and tax payments, and favorable working capital. Free cash flow fell despite higher operating cash flow, principally because 2020 included substantially higher divestiture proceeds. The company defines free cash flow as operating cash flow less capital expenditures plus divestiture proceeds; it is a non-GAAP measure.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $118M at year-end, compared with $553M in 2020.
- Debt was $13.405B; $708M was classified as current. The company identified $3.1B of debt maturing within 12 months, including commercial paper and tax-exempt bonds whose rate periods expire, and classified $2.4B as long-term based on its intent and ability to refinance.
- The $3.5B revolving credit facility had no direct borrowings outstanding; after supporting commercial paper and letters of credit, reported available capacity was $1.5B. The facility matures in November 2024.
- Operating cash flow funded $1.904B of capital expenditures, $970M of dividends and $1.350B allocated to share repurchases. The 2021 dividend was $2.30 per share.
- In May 2021, the company issued $950M of lower-coupon senior notes and used the proceeds plus cash to retire $1.3B of higher-coupon notes, recognizing a $220M early-extinguishment loss.
Outlook, commentary and risks
- Management said volumes recovered through 2021, with key commercial, industrial and landfill volumes at or above pre-pandemic levels by year-end. It remained optimistic about recovery but noted uncertainty from COVID-19 and possible renewed disruption.
- Management emphasized pricing, cost control, labor productivity, digitalization and recycling automation. Inflation, labor shortages, overtime, repair costs, supply-chain constraints and higher fuel costs were pressuring margins. Contract price-index lookbacks can delay cost recovery; management said many would begin capturing recent inflation in 2022.
- No formal earnings or revenue guidance is provided in the supplied filing text. The Board expected to raise the quarterly dividend from $0.575 to $0.65 per share for 2022, subject to declaration.
- WM Renewable Energy had four owned RNG facilities producing 3.2 million MMBtu annually and planned to expand to 21 facilities and approximately 24 million MMBtu annually by 2026. Returns depend in part on renewable fuel credits, including RIN prices and regulation.
- Material risks include landfill permitting and airspace, environmental and closure obligations, potential PFAS-related costs, climate and severe-weather impacts, recycling commodity volatility and changing export rules, regulation of landfill emissions, labor availability, fuel and inflation exposure, interest rates, and competition or diversion of waste from landfills.
- Landfill and environmental remediation liabilities totaled $2.539B at year-end, including $2.326B of landfill liabilities and $213M of environmental remediation liabilities. Management’s estimates depend on costs, timing, airspace and regulatory assumptions.
- The company reported a cyber intrusion in early 2021 that it said did not affect operations, services or financial statements. Regulatory investigations and a related class action remained possible; management did not expect a material adverse effect.
- Auditors issued unqualified opinions on the financial statements and internal control over financial reporting. The audit highlighted landfill amortization and landfill capping, closure and post-closure cost estimates as critical audit matters.
Most important facts for investors to verify
- Separate acquisition-driven revenue and earnings growth from organic yield and volume growth; compare 2021 with a pro forma 2020 baseline where appropriate.
- Assess whether pricing and contract escalators can recover labor, fuel, maintenance and other inflationary costs without undermining volumes or retention.
- Review the $3.1B of near-term debt maturities, refinancing assumptions, commercial-paper exposure and available revolver capacity.
- Track free cash flow after capital spending and shareholder distributions, and distinguish recurring cash generation from divestiture proceeds.
- Evaluate the assumptions behind landfill airspace, amortization and closure liabilities, and monitor PFAS, permitting and other environmental developments.
- Monitor RNG expansion economics and sensitivity to RIN prices and policy, as well as the outcome of the cyber-related proceedings.