Recycling Commodity Prices Down 17.5% - Volumes Drop 5.5% : Bullish Outlook at Waste Management as Full Year Revenues Fall by $1bn

Houston, Texas based Waste Management, Inc. (NYSE:WM) has published its fourth quarter and full year financial results which showed a drop in revenue for the fourth quarter of 2015 – down to $3.25 billion compared with $3.44 billion for the same period in 2014 and a drop from $14 billion to $13 billion for the full year.

The figures, published today, also showed that net income for the quarter was $273 million, or $0.61 per diluted share, compared with net income of $590 million, or $1.28 per diluted share, for the fourth quarter of 2014.

Some of that decline can be attributed to the tough trading conditions for the recycling industry as a whole. For the full year, average recycling commodity prices were approximately 17.5% lower and volumes declined 5.5%, driving a $0.04 decline in the Company’s earnings per diluted share from recycling operations. However, recycling operations are expected to have no year-over-year impact on earnings per diluted share in 2016.

Waste Management said that it expects its internal revenue growth from volume in the its traditional solid waste business to be positive in 2016.

However, the Company said that it does not expect a recovery in lower margin recycling or non-solid waste volumes. Consequently, the Company anticipates overall volumes to be about flat; with volumes in the first half of the year being slightly negative, and volumes turning positive in the second half of the year.

Internal revenue growth from volume at the company’s traditional solid waste business was slightly positive in the fourth quarter of 2015, an improvement of 60 basis points versus the fourth quarter of 2014. Total Company internal revenue growth from volume declined 0.9% in the fourth quarter, an improvement from a negative 1.4% in the third quarter of 2015. Total Company volume declined 1.6% for the full year 2015.

Free cash flow was $188 million in the fourth quarter of 2015, which included a prepayment of $150 million for 2016 cash taxes. The Company said that it had $31 million of pre-tax divestiture proceeds in the quarter.

Free cash flow for the full year was $1.41 billion, despite the fourth quarter tax prepayment and a reduction in free cash flow of $130 million related to businesses divested in 2014. The Company had $145 million of pre-tax divestiture proceeds in 2015. Free cash flow for 2016 was projected to be between $1.5 and $1.6 billion.

Despite the tricky trading conditions being experienced, David P. Steiner, president and chief executive officer at Waste Management was positive:

“In 2015 we maintained our commitment to core price, disciplined growth, and cost controls,” commented David P. Steiner, president and chief executive officer at Waste Management. “The continued improvement in these areas is reflected in our key operating metrics in our fourth quarter and full year results, leading to year-over-year improvements in adjusted operating income and margin and operating EBITDA and margin.”

“In the fourth quarter, the trend toward positive volumes continued, with internal revenue growth from volume in our traditional solid waste business improving 60 basis points compared to the fourth quarter of 2014. We saw improving volume trends across our industrial and commercial lines of business.

“We are encouraged by the positive momentum we are seeing in these volumes and expect them to continue to improve throughout 2016. Our continued focus on core price and costs, combined with improving volumes, position us for strong cash generation in 2016 and beyond.

“2015 was a very successful year for Waste Management. We met or exceeded the goals that we established at the beginning of the year, and that led us to exceed our original full year adjusted earnings per share guidance. Free cash flow was also on pace to exceed our original guidance, and as a result, we applied some of that excess toward 2016 cash taxes.

“Our strong free cash flow allowed us to return almost $1.3 billion to our shareholders. Moreover, in 2015 we spent more than $500 million on acquisitions that we expect to generate significant cash flow in 2016. Based upon the strength in our cash generation, our Board of Directors raised our dividend by more than 6% and authorized $1 billion of share repurchases.

“In 2016 we expect to continue the progress that we made in 2015 by continuing to execute on our pricing, disciplined growth, and cost control strategies, while integrating recently acquired businesses. This should position us to achieve approximately $3.6 billion of operating EBITDA, and to produce solid earnings and cash generation. In 2016, we will also continue to return significant cash to our shareholders, and we have already spent $150 million on share repurchases in the first quarter.”

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