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Why Is Waste Management (WM) Down 0.7% Since Last Earnings Report?

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It has been about a month since the last earnings report for Waste Management (WM - Free Report) . Shares have lost about 0.7% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waste Management due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Waste Management Tops Q2 Earnings, Revenue Estimates

Waste Management reported solid second-quarter 2019 results, wherein the company’s earnings and revenues surpassed the Zacks Consensus Estimate.

Adjusted earnings per share of $1.11 beat the consensus mark by 4 cents and were higher than the year-ago quarter by 10 cents. Total revenues of $3.95 billion surpassed the consensus estimate by $5.3 million and increased 5.5% year over year.

The top line benefited from strong yield and volume growth in the company’s collection and disposal business, which contributed $230 million of incremental revenues. This was, however, partially offset by $38 million decline in recycling business revenues.

Internal revenue growth from yield for collection and disposal operations was 2.7% compared with 2.3% in the year-ago quarter. Collection and disposal business internal revenue growth from volume was 4.4% in second-quarter 2019. Total company internal revenue growth from volume, which includes recycling business, was 4%.

Quarterly Numbers in Detail

The Collection segment recorded revenues of $2.57 billion, up 5.4% from the prior-year quarter’s figure. Landfill segment’s top line increased 11.8% year over year to $1.02 billion. Total revenues in the Transfer segment were up 8.5% to $474 million. Recycling segment revenues decreased 13.4% to $264 million. Other businesses’ revenues totaled $445 million, up 1.4% year over year. 

Adjusted operating EBITDA of $1.13 billion increased 6.9% from the year-ago quarter’s level. Adjusted operating EBITDA margin increased to 28.7% from 28.4% in the year-ago quarter.

Operating income came in at $696 million compared with $715 million in the year-ago quarter. Operating income margin decreased to 17.6% from 19.1% in the year-ago quarter.

Waste Management exited second-quarter 2019 with cash and cash equivalents of $2.25 billion compared with $57 million at the end of the prior quarter. Long-term debt was $12.62 billion compared with $9.32 billion at the end of the prior quarter.

The company generated $1.01 billion of cash from operating activities and spent $578 million in capital expenditures. Free cash flow was $440 million compared with $621 million in the prior-year quarter.

The company paid dividends worth $217 million and repurchased shares worth $180 million in second-quarter 2019. It spent $48 million on acquisitionsof traditional solid waste businesses during the reported quarter.

2019 Guidance

Waste Management reaffirmed its full-year 2019 guidance. The company continues to expect adjusted EPS in the range of $4.28-$4.38. Adjusted operating EBITDA is expected in the range of $4.40-$4.45 billion. Free cash flow is expected between $2.025 and $2.075 billion.

How Have Estimates Been Moving Since Then?

Fresh estimates followed an upward path over the past two months.

VGM Scores

Currently, Waste Management has a nice Growth Score of B, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Waste Management has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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