Waste Management (WM) Beats on Q2 Earnings, Revenues Up Y/Y

Waste Management, Inc WM reported net income of $210 million or 45 cents per share in the second quarter of 2014 versus $244 million or 52 cents per share in the year-ago period.  The results were impacted by $69 million of after-tax charges primarily related to the divestiture of operations in Puerto Rico.

Excluding one-time items, adjusted earnings per share EPS stood at 60 cents in the reported quarter versus EPS of 54 cents in the year-ago period. Earnings also exceeded the Zacks Consensus Estimate by a penny.

Quarter in Detail
    
Revenues for the second quarter of 2014 increased 1.0% to $3,561 million but lagged the Zacks Consensus Estimate of $3,612 million.  Internal revenue growth from yield (for collection and disposal operations) stood at 2.3% in the reported quarter.

Core price (including price increases and fees, other than the company's fuel surcharge, net of rollbacks) was 3.9% in the reported quarter versus 3.8% in the year-ago quarter.

Internal revenue reported a decline of 1.4% in the reported quarter. Many of the low-margin national accounts led to half of the decline.

Revenues from the company's Collection business increased to $2,161 million from $2,133 million in the year-ago quarter. Landfill revenues improved marginally by 2.2% to $732 million from $716 million in the prior-year period. Recycling revenues declined to $351 million from $366 million, while Transfer revenues were up by $12 million to $357 million. Wheelabrator revenues were down 4.2% to $206 million.

Operating expenses decreased by $10 million to $2,301 million in the quarter, driven by improvement in recycling operations. SG&A expenses stood at $353 million, unchanged from the second quarter of 2013.

Financials

Cash and cash equivalents stood at $137 million as of Jun 30, 2014, while long-term debt (less current portion) stood at $9,011 million.

Net cash provided by operations for six months ended June 2014 improved to $1,139 million in the reported quarter from $1,122 million in the year-ago period. Capital expenditure stood at $474 million versus $501 million in the year-ago period.

Free cash flow stood at $447 million versus $347 million in the year-ago quarter.

During the quarter, Waste Management returned $175 million to shareholders in dividends.  Also, the company entered into a share repurchase program to return $600 million of cash flow to its shareholders through share repurchases.

The company is currently under negotiations to sell its Wheelabrator business to Energy Capital Partners for $1.94 billion as part of its effort to focus on its core business.

Outlook

Waste Management expects free cash flow to be within $1.4 billion to $1.5 billion for fiscal 2014.  The company expects adjusted EPS guidance in the range of $2.30 and $2.35. Also, full year 2014 yield is expected to be more than 2%.

Going forward, the company expects to strengthen its core business and return cash to its shareholders.

Waste Management currently has a Zacks Rank #2 (Buy). Other stocks that look promising and are worth a look include US Ecology, Inc. ECOL, carrying a Zacks Rank #1 (Strong Buy), and Clean Harbors, Inc. CLH and Stericycle, Inc. SRCL, both carrying a Zacks Rank #2.

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