WM Shows Strong Q2 2023 Results

WM (Waste Management) announced its second-quarter financial results, showcasing continued growth.

Jim Fish, WM president and CEO, credited the company's disciplined pricing and cost optimization strategies for a solid performance.

"Our solid results in the second quarter reflect our continued focus on disciplined pricing and cost optimization across our business," he said. "This focus delivered a 60-basis-point expansion in adjusted operating EBITDA margin in the quarter, driven by the collection and disposal business and strong SG&A cost control."

Despite facing inflationary pressures across several cost categories, lower-than-expected renewable energy prices, and slower event-driven volumes, Waste Management's teams executed well during the first half of 2023, delivering robust results.

The company remains confident about its prospects in the latter half of the year as these market-driven impacts are expected to subside.

WM's disciplined pricing effectively kept pace with rising costs. Moreover, the company's focus on improving frontline turnover and driving leverage on SG&A expenses has led to notable improvements in operational efficiency, according to Fish.

“Considering these market-driven impacts and Hurricane Ian clean-up volumes that were significantly lower than expected, we are well positioned to deliver strong growth in the back half of the year as these pressures abate," Fish said.

Core price for Q2 2023 was 6.9%, showing a slight decrease from 7.5% in the same period last year. Collection and disposal yields also saw a decline, standing at 5.8% compared to 6.2% in Q2 2022. Total company and collection and disposal volumes each experienced marginal increases of 0.2%.

Operating expenses as a percentage of revenue improved to 62.2% in Q2 2023 from 62.5% in Q2 2022. On an adjusted basis, operating expenses as a percentage of revenue also improved to 62.2% from 62.4%. SG&A expenses as a percentage of revenue were 9.1% in Q2 2023, down from 9.7% in Q2 2022.

Operating EBITDA in the company's collection and disposal business increased by approximately $95 million, reaching $1.63 billion for Q2 2023. Operating EBITDA as a percentage of revenue in this segment was 31.6%, compared to 31.2% in Q2 2022.

However, WM's recycling line of business faced challenges, experiencing a decline of $41 million due to lower market prices for single-stream recycled commodities.

WM's renewable energy business also saw a decrease of $22 million compared to Q2 2022, primarily due to decreases in the value of renewable fuel standard credits and lower energy prices.

As part of its commitment to sustainability, the company has been investing in various projects to advance its environmental initiatives.

WM expects these projects to contribute approximately $740 million in incremental annual adjusted operating EBITDA starting in 2026.

The anticipated contributions comprise about $500 million from renewable energy investments and approximately $240 million from recycling investments.

However, adjusted operating EBITDA contributions from sustainability growth investments may undergo adjustments in the interim years leading up to 2026 due to factors like construction and permitting delays, according to the company.

sustainability growth capital spending in 2023 is expected to be about $200 million lower than previously projected due to customary delays in certain projects. Nevertheless, there will be an increase in capital spending in later years as a result of this timing shift, inflation, and other factors.

In June, the U.S. Environmental Protection Agency (EPA) finalized renewable fuel volume obligations for 2023 through 2025, providing stability to the market for renewable fuel standard credits. The growing demand for renewable natural gas as a transportation fuel has also bolstered the company's confidence in its blended average pricing assumption of $26/MMBtu used for investment strategies.

During the second quarter of 2023, Waste Management achieved significant milestones in its sustainability growth program. The company opened its Eco Vista renewable natural gas (RNG) facility in Springdale, Ark., marking the completion of its sixth RNG facility and the second project of its planned 20.

Additionally, two recycling growth projects were completed, including technology and automation upgrades at a recycling facility in Surprise, Ariz., and the opening of a recycling facility in the Greater Toronto area. These investments are aimed at reducing labor and processing costs, enhancing efficiency and improving material quality to reap benefits in any commodity market.

Revised 2023 Outlook:

The company has adjusted its expectations for 2023 based on first-half results and changing market conditions. Total company revenue growth is now expected to be between 3.25% and 4.25%, with core price outlook remaining strong between 6.5% and 7.0%. However, conversion of core price to yield is exceeding expectations, and the company now anticipates collection and disposal yield to exceed 5.5%.

WM's overall collection and disposal volume outlook remains unchanged and is expected to be flat compared to 2022. Adjusted operating EBITDA is forecasted to be between $5.775 and $5.875 billion, with efforts in pricing and cost optimization on track to deliver a targeted improvement in adjusted operating EBITDA margin of at least 40 basis points for the year.

“As we move into the back half of 2023, we remain focused on cost optimization, efficiency improvements, and solid execution on pricing to overcome top-line pressures from lower recycling commodity prices and slower than expected event-driven volumes. We expect this focus to continue to translate into strong margin expansion,” Fish said in a statement.