WM Beats Q3 Estimates—Optimistic on EBITDA Margin Guidance

Waste Management (WM) announced Q3 2020 results and continues the upbeat trend in the industry. WM generated more than $1 billion of net cash from operating activities and strong operating EBITDA margin.

“We’ve consistently pointed to operating EBITDA as the best measure of the health of our business, and despite the challenging backdrop, we delivered third quarter adjusted operating EBITDA results in line with last year’s record performance and expanded adjusted operating EBITDA margin by 70 basis points,” said Jim Fish, Waste Management’s president and CEO.  “This is a testament both to our team’s ability to optimize our business in the new environment as well as the progress of economic recovery in North America."

WM expects to exceed its 2020 adjusted operating EBITDA margin guidance of 28% to 28.5% and generate free cash flow in excess of $2 billion.

Based on WM’s earnings call today, the Advanced Disposal integration is going well and the management team is confident that the acquisition will provide long-term value.

Q3 Highlights

Revenue

Cost Management

Profitability

Free Cash Flow & Capital Allocation

Sustainability Is Top of Mind

Fish noted that 70% of their fleets are running on CNG and that some of the noted efficiencies gained and maintenance cost cuts achieved could likely be attributed to these vehicles. WM is researching electric fleets, but they do not plan to abandon their CNG plans. The company is pleased with their CNG conversion results.

“In addition to our strong quarterly results, we are also proud to have published our 2020 Sustainability Report last month. Titled ‘Building Value Together,’ the report describes how we are addressing challenges and opportunities related to the environment, social issues and governance, and doing so in close partnership with our customers, suppliers and communities. Amidst the crises of 2020, we remained steadfast to our commitments of putting people first, advocating for inclusion and diversity, protecting the environment, and contributing to a circular economy.”

When asked if there would be capital creep from WM’s sustainability initiatives, the management team said that no, any investments would be built into the business since they have been focused on sustainability for 10 years. It is not a new undertaking for the company.

The Election and the Future

When asked about the potential changes ahead due to the election. Devina Rankin, CFO, noted that if a Biden election occurs, the federal tax rate would likely increase from 21% to 28%. She said it was hard to predict anything beyond that.

Jim Fish added that any additional environmental regulation would likely benefit the company since the company holds itself to a very high standard.

Fish concluded, “We have taken to heart lessons learned during this pandemic such that we will emerge a stronger, more differentiated company. We’ve learned that we can operate our business with a lower cost structure, and we are holding on to operating efficiencies and cost savings as our volumes recover. Our customer service digitalization investments are unquestionably the right approach, and we have accelerated these efforts to reap the benefits sooner. With further contributions from the acquisition of Advanced Disposal that closed last week and our progress in transforming the recycling business, we are well-positioned for a strong finish to the year with positive momentum heading into 2021.”