Waste Management Beats Estimates

Waste Management Inc. ( WM - Analyst Report ) recorded a 5% increase in EPS to 63 cents (excluding special items) in the fourth quarter from 60 cents in the year-ago quarter. The company outperformed the Zacks Consensus Estimate of 60 cents.

Including after-tax charge for a litigation loss, asset impairments, restructuring, results of the acquired Oakleaf operations and related integration costs, EPS in the quarter stood at 58 cents. Including special items such as after-tax charge for litigation; benefit from the accounting effect of higher ten-year Treasury rates, and a benefit in net income primarily from income tax audit settlements, EPS in the prior year quarter was 59 cents.

Revenues increased 7% to $3.406 billion from $3.187 billion in the year-ago quarter, marginally higher than the Zacks Consensus Estimate of $3.4 billion. Internal revenue growth from volume fell 0.6% during the quarter. Internal revenue growth from yield for collection and disposal operations was 1.4%.

Revenues from the company’s Collection business decreased marginally by 1% to $2.1 billion, Landfill business dipped 3% to $671 million, Transfer business dipped 7% to $315 million, Wheelabrator business declined 7% to $213 million, Recycling business revenues plunged 19% to $353 million.

Adjusted operating expenses increased 4% to $2.02 billion due to increased cost of goods sold from recycling commodity rebates and increase in fuel costs. Selling, general and administrative expenses remained flat at $367 million compared to the prior-year quarter. The company’s operating profit increased 22% to $724 million with operating margin of 21.3% versus 18.6% in the prior-year quarter.

Adjusted EPS in fiscal 2011 was $2.14 compared with $2.09 in the previous year, surpassing the Zacks Consensus Estimate of $2.11 and at the lower end of the company’s guided range of $2.14-$2.18. Including special items, EPS was $2.04 versus $1.98 in fiscal 2010. Revenues increased 7% to $13.4 billion, ahead of the Zacks Consensus Estimate of $13.3 billion.

Cash and cash equivalents deteriorated to $258 million as of December 31, 2011 from $539 million as of December 31, 2011. Long-term debt amounted to $9.1 billion as of December 31, 2011 with debt-to-total capital ratio of 60.4% compared with $8.6 billion and 57.5% as of December 31, 2010, respectively.

During the year, cash flow from operations increased to $2.47 billion from $2.27 billion in the comparable year-ago period. Free cash flow decreased to $1.198 billion in the year from $1.215 billion in the prior year. The company returned $1.21 billion to shareholders, consisting of $637 million in dividends and $575 million in common stock repurchases.

Waste Management expects 2012 adjusted EPS to lie between $2.22 and $2.30 in fiscal 2012. Internal revenue growth from yield on the collection and disposal business is expected to be in the range of 1.0% to 1.5%. Yield in the second half is expected to improve in the second half from the first half. Internal revenue growth from volume is expected to be flat to slightly positive.

Capital expenditures are expected to be approximately $1.4 billion. Free cash flow is projected to be between $1.1 billion and $1.2 billion.The company’s Board of Directors has announced its intention to increase the dividend to $1.42 per share. This will result in an annual payout of $665 million approximately. In addition, the Board has authorized up to $500 million in share repurchases.

Waste Management’s ability to cut costs will help in maintaining profits despite weak volumes. However, lower trending recycling prices, lower volumes, commodity headwinds and continued margin deterioration remain causes of concern. Backed by its strong cash flow, the company has increased its dividend for the eight consecutive years.

The recent acquisition of Oakleaf Global Holdings will provide North American customers with unprecedented access to waste and recycling solutions by pairing the largest network of directly owned hauling, recycling, diversion and disposal assets with the largest managed third-party network.

Waste Management is the largest provider of comprehensive waste management services in North America. The company provides collection, transfer, recycling and resource recovery, as well as disposal services to nearly 20 million residential, commercial, industrial and municipal customers. It competes with Republic Services, Inc. ( RSG - Analyst Report ) and Casella Waste Systems Inc. ( CWST - Snapshot Report ) . Waste Management currently maintains a Zacks #3 Rank (Hold) on its stock for the short term.