Date: July 30, 2007
Source: Waste Management, Inc.
-- Income from Operations as a Percent of Revenue Expands by over 200 Basis Points
-- Company Raises Full-Year 2007 Earnings Guidance
Waste Management, Inc. (NYSE: WMI) today announced financial results for its second quarter ended June 30, 2007. Net income for the quarter was $338 million, or $0.64 per diluted share, compared with $417 million, or $0.76 per diluted share in the prior year period. The Company noted several items that impacted the results in the current and prior years' second quarters. Excluding these items, net income would have been $0.56 per diluted share in the second quarter of 2007 compared with $0.45 per diluted share in the prior year quarter, or a 24% increase in earnings per diluted share.(a)
The Company noted the following items that impacted the results for the quarter:
-- A $24 million benefit in net income primarily resulting from income tax audit settlements and adjustments to deferred taxes arising from legislative changes.
-- An after-tax benefit of $18 million due to gains on the divestitures of operations.
Combined, these items improved second quarter 2007 after-tax earnings by $42 million. Without the impact of these items, net income for the quarter would have been $296 million, or $0.56 per diluted share.(a)
The prior year's second quarter earnings included a net after-tax benefit of $168 million primarily due to tax audit settlements. Without such benefit, net income in last year's second quarter would have been $249 million, or $0.45 per diluted share.(a)
Income from operations as a percent of revenue improved 230 basis points to 18.9% in the second quarter of 2007 as compared with the second quarter of 2006. Income from operations as a percent of revenue, as adjusted for the items noted above, increased 210 basis points to 17.9% in the second quarter of 2007 as compared with the second quarter of 2006.(a)
"We are pleased with our second quarter 2007 financial performance, as we again accomplished our primary goals of adjusted earnings growth, operating margin expansion and strong free cash flow," said David P. Steiner, Chief Executive Officer of Waste Management. "Our strong financial performance continues to be driven by the success of our pricing and operational excellence programs."
Revenues for the quarter were $3.36 billion as compared with $3.41 billion in the year ago period, a decline of $52 million, as the Company continued to execute its strategy to divest underperforming operations and accounts. Excluding the divestiture of underperforming operations representing $104 million of second quarter 2006 revenues, second quarter 2007 revenues would have been up $52 million on a year-over-year basis. (a)
Steiner continued, "Our internal revenue growth due to yield on base business was 3.4%. If we include the 2.2% benefit from higher recycling commodity prices, internal revenue growth from yield was 5.6%. The internal revenue growth from yield in our combined commercial, industrial and residential lines of business was 4.6%. Our strategy to price work in order to achieve acceptable margins and returns again worked very well in the second quarter, as the volume loss in our collection line of business was about 4.8%, but the income from operations in our collection business grew 20%.
"The internal revenue growth from yield at our landfills and transfer stations improved in the second quarter of 2007, and we expect that to continue as we further implement our disposal pricing excellence program throughout the Company."
As for the Company's operational excellence programs, Steiner noted, "Our operating expense results continued to improve during the second quarter of 2007. We lowered our operating costs by $107 million during this year's quarter, which is a 4.9% improvement in absolute dollars when compared with the prior year's quarter. Operating expenses as a percent of revenue in the second quarter of 2007 stood at 62.3%, a 220 basis point improvement when compared with the second quarter of 2006. This marks the eighth consecutive quarter in which our year-over-year operating costs as a percent of revenue have improved.
"Net cash provided by operating activities and free cash flow were both strong for the quarter. We returned $321 million to shareholders in the form of our $0.24 per share quarterly dividend and our share repurchase program."
Key Highlights for the Second Quarter of 2007
-- Income from operations as adjusted was $600 million, or 17.9% of revenue, an increase of 210 basis points compared with the prior year second quarter as adjusted.
-- Internal revenue growth from yield on base business of 3.4%. Including the positive impact of higher recycling commodity prices, internal revenue growth from yield was 5.6%.
-- Higher recycling commodity prices contributed approximately $0.02 per diluted share to the year-over-year improvement in earnings per diluted share.
-- Internal revenue growth from volume was negative 4.4%. The volume component included a 4.8% reduction in collection volumes and a 4.4% reduction in landfill volumes.
-- Divestitures caused a 3.1% decline in revenues in the quarter, while acquisitions contributed 0.2% to higher revenues.
-- Operating expenses were 62.3% of revenue, down from 64.5% of revenue in the same period in 2006.
-- Capital expenditures of $209 million, compared with $296 million in the second quarter of 2006.
-- Free cash flow of $475 million, compared with $398 million in the second quarter of 2006.(a)
-- A total of $321 million in cash returned to shareholders in the form of $196 million in common stock repurchases and $125 million in dividend payments.
The effective tax rate in the quarter, after adjusting for the income tax items noted above, was 34%, which reflects an estimated phase-out of 29% of our Section 45K tax credits due to the level of actual and projected crude oil prices.(a) Section 45K tax credits generated an additional $0.02 per diluted share benefit to net income in the second quarter of 2007 compared with the second quarter of 2006.
Steiner concluded, "Our overall performance during the first and second quarters of this year was very strong. The continued success of our pricing and operational excellence strategies is clearly reflected in our results. Our first and second quarter results give us confidence that we will achieve our earnings expectations for the remaining two quarters of 2007. As a result, we now project our full-year 2007 earnings to be within the range of $2.07 to $2.11 per diluted share, without considering the financial impact associated with the recently ended labor disruption in the Oakland, California area and certain other items.(a) This is an increase from our previous projection of $2.03 to $2.07 per diluted share. On the same basis, we now project that we will meet or exceed our previously projected free cash flow range of $1.30 to $1.40 billion for the full-year 2007."
The Company has scheduled an investor and analyst conference call for later this morning to discuss the results of today's earnings announcement. The information in this press release should be read in conjunction with the information on the conference call. The call will begin at 10:00 a.m. Eastern time, 9:00 a.m. Central time, and is open to the public. To listen to the conference call, which will be broadcast live over the Internet, go to the Waste Management Website at www.wm.com, and select "2Q2007 Earnings Report Webcast." You may also listen to the analyst conference call by telephone by contacting the conference call operator 5 to 10 minutes prior to the scheduled start time and asking for the "Waste Management Conference Call - Call ID 4344708." US/Canada Dial-In Number: (877) 710-6139. Int'l/Local Dial-In Number: (706) 643-7398. For those unable to listen to the live call, a replay will be available 24 hours a day beginning at approximately noon. Central time on July 31 through 5:00 p.m. Central time on August 14. To hear a replay of the call over the Internet, access the Waste Management Website at www.wm.com. To hear a telephonic replay of the call, dial (800) 642-1687 or (706) 645-9291 and enter reservation code 4344708.
Waste Management, Inc., based in Houston, Texas, is the leading provider of comprehensive waste management services in North America. Through its subsidiaries, the Company provides collection, transfer, recycling and resource recovery, and disposal services. It is also a leading developer, operator and owner of waste-to-energy and landfill gas-to-energy facilities in the United States. The Company's customers include residential, commercial, industrial, and municipal customers throughout North America.
For Further Information:
Waste Management, Inc.
Analysts: Greg Nikkel - 713.265.1358
Media: Lynn Brown - 713.394.5093
Web site: www.wm.com.
|
June 30, |
December 31, |
|||||||
| 2007 | 2006 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
|
Current assets:
|
||||||||
|
Cash and cash equivalents
|
$ | 570 | $ | 614 | ||||
|
Accounts receivable, net of
allowance for doubtful accounts of $45 and $51, respectively
|
1,669 | 1,650 | ||||||
|
Other receivables
|
154 | 208 | ||||||
|
Parts and supplies
|
102 | 101 | ||||||
|
Deferred income taxes
|
80 | 82 | ||||||
|
Other assets
|
286 | 527 | ||||||
|
Total current assets
|
2,861 | 3,182 | ||||||
|
Property and equipment, net of
accumulated depreciation and amortization of $12,432 and
$11,993, respectively
|
11,096 | 11,179 | ||||||
|
Goodwill
|
5,359 | 5,292 | ||||||
|
Other intangible assets, net
|
118 | 121 | ||||||
|
Other assets
|
750 | 826 | ||||||
|
Total assets
|
$ | 20,184 | $ | 20,600 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$ | 563 | $ | 693 | ||||
|
Accrued liabilities
|
1,151 | 1,298 | ||||||
|
Deferred revenues
|
451 | 455 | ||||||
|
Current portion of long-term debt
|
526 | 822 | ||||||
|
Total current liabilities
|
2,691 | 3,268 | ||||||
|
Long-term debt, less current
portion
|
7,723 | 7,495 | ||||||
|
Deferred income taxes
|
1,315 | 1,365 | ||||||
|
Landfill and environmental
remediation liabilities
|
1,292 | 1,234 | ||||||
|
Other liabilities
|
809 | 741 | ||||||
|
Total liabilities
|
13,830 | 14,103 | ||||||
|
Minority interest in subsidiaries
and variable interest entities
|
284 | 275 | ||||||
|
Commitments and contingencies
|
||||||||
|
Stockholders’ equity:
|
||||||||
|
Common stock, $0.01 par
value; 1,500,000,000 shares authorized;
630,282,461 shares issued
|
6 | 6 | ||||||
|
Additional paid-in capital
|
4,524 | 4,513 | ||||||
|
Retained earnings
|
4,739 | 4,410 | ||||||
|
Accumulated other comprehensive
income
|
180 | 129 | ||||||
|
Treasury stock at cost,
111,430,680 and 96,598,567 shares, respectively
|
(3,379 | ) | (2,836 | ) | ||||
|
Total stockholders’ equity
|
6,070 | 6,222 | ||||||
|
Total liabilities and
stockholders’ equity
|
$ | 20,184 | $ | 20,600 | ||||
|
Three Months Ended |
Six Months Ended |
|||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2007 | 2006 | 2007 | 2006 | |||||||||||||
|
Operating revenues
|
$ | 3,358 | $ | 3,410 | $ | 6,546 | $ | 6,639 | ||||||||
|
Costs and expenses:
|
||||||||||||||||
|
Operating
|
2,092 | 2,199 | 4,126 | 4,299 | ||||||||||||
|
Selling, general and administrative
|
343 | 328 | 696 | 696 | ||||||||||||
|
Depreciation and amortization
|
322 | 345 | 632 | 673 | ||||||||||||
|
Restructuring
|
1 | — | 10 | — | ||||||||||||
|
(Income) expense from
divestitures, asset impairments and unusual items
|
(33 | ) | (27 | ) | (32 | ) | (29 | ) | ||||||||
| 2,725 | 2,845 | 5,432 | 5,639 | |||||||||||||
|
Income from operations
|
633 | 565 | 1,114 | 1,000 | ||||||||||||
|
Other income (expense):
|
||||||||||||||||
|
Interest expense
|
(132 | ) | (138 | ) | (267 | ) | (274 | ) | ||||||||
|
Interest income
|
11 | 20 | 29 | 29 | ||||||||||||
|
Equity in net earnings (losses) of
unconsolidated entities
|
(22 | ) | 10 | (46 | ) | 2 | ||||||||||
|
Minority interest
|
(11 | ) | (10 | ) | (21 | ) | (22 | ) | ||||||||
|
Other, net
|
1 | — | 2 | 1 | ||||||||||||
| (153 | ) | (118 | ) | (303 | ) | (264 | ) | |||||||||
|
Income before income taxes
|
480 | 447 | 811 | 736 | ||||||||||||
|
Provision for income taxes
|
142 | 30 | 235 | 133 | ||||||||||||
|
Net income
|
$ | 338 | $ | 417 | $ | 576 | $ | 603 | ||||||||
|
Basic earnings per common share
|
$ | 0.65 | $ | 0.77 | $ | 1.10 | $ | 1.11 | ||||||||
|
Diluted earnings per common share
|
$ | 0.64 | $ | 0.76 | $ | 1.09 | $ | 1.09 | ||||||||
|
Cash dividends declared per common
share (1st quarter 2006 dividend of $0.22 per share declared in
December 2005, paid in March 2006)
|
$ | 0.24 | $ | 0.22 | $ | 0.48 | $ | 0.22 | ||||||||
|
Six Months |
||||||||
|
Ended |
||||||||
| June 30, | ||||||||
| 2007 | 2006 | |||||||
|
Cash flows from operating
activities:
|
||||||||
|
Net income
|
$ | 576 | $ | 603 | ||||
|
Adjustments to reconcile net
income to net cash provided by operating activities:
|
||||||||
|
Provision for bad debts
|
16 | 19 | ||||||
|
Depreciation and amortization
|
632 | 673 | ||||||
|
Deferred income tax provision
|
(38 | ) | 3 | |||||
|
Minority interest
|
21 | 22 | ||||||
|
Equity in net (earnings) losses of
unconsolidated entities, net of distributions
|
21 | 12 | ||||||
|
Net gain from disposal of assets
|
(16 | ) | (11 | ) | ||||
|
Effect of (income) expense from
divestitures, asset impairments and unusual items
|
(32 | ) | (29 | ) | ||||
|
Excess tax benefits associated
with equity-based transactions
|
(20 | ) | (31 | ) | ||||
|
Change in operating assets and
liabilities, net of effects of acquisitions and divestitures:
|
||||||||
|
Receivables
|
5 | (31 | ) | |||||
|
Other current assets
|
(19 | ) | (8 | ) | ||||
|
Other assets
|
7 | (4 | ) | |||||
|
Accounts payable and accrued
liabilities
|
(48 | ) | (91 | ) | ||||
|
Deferred revenues and other
liabilities
|
(30 | ) | 53 | |||||
|
Net cash provided by operating
activities
|
1,075 | 1,180 | ||||||
|
Cash flows from investing
activities:
|
||||||||
|
Acquisitions of businesses, net of
cash acquired
|
(46 | ) | (27 | ) | ||||
|
Capital expenditures
|
(481 | ) | (527 | ) | ||||
|
Proceeds from divestitures of
businesses (net of cash divested) and other sales of assets
|
216 | 155 | ||||||
|
Purchases of short-term investments
|
(743 | ) | (1,707 | ) | ||||
|
Proceeds from sales of short-term
investments
|
803 | 1,499 | ||||||
|
Net receipts from restricted trust
and escrow accounts
|
81 | 86 | ||||||
|
Other
|
(14 | ) | (38 | ) | ||||
|
Net cash used in investing
activities
|
(184 | ) | (559 | ) | ||||
|
Cash flows from financing
activities:
|
||||||||
|
New borrowings
|
315 | 96 | ||||||
|
Debt repayments
|
(452 | ) | (149 | ) | ||||
|
Common stock repurchases
|
(683 | ) | (627 | ) | ||||
|
Cash dividends
|
(251 | ) | (240 | ) | ||||
|
Exercise of common stock options
and warrants
|
111 | 202 | ||||||
|
Excess tax benefits associated
with equity-based transactions
|
20 | 31 | ||||||
|
Minority interest distributions
paid
|
(12 | ) | (8 | ) | ||||
|
Other
|
15 | (23 | ) | |||||
|
Net cash used in financing
activities
|
(937 | ) | (718 | ) | ||||
|
Effect of exchange rate changes on
cash and cash equivalents
|
2 | — | ||||||
|
Increase (decrease) in cash and
cash equivalents
|
(44 | ) | (97 | ) | ||||
|
Cash and cash equivalents at
beginning of period
|
614 | 666 | ||||||
|
Cash and cash equivalents at end
of period
|
$ | 570 | $ | 569 | ||||
Sign up to receive our free Weekly News Bulletin