Integrated waste services provider Waste Management, Inc. (WMI) on Thursday reported a 22.3% year-over-year decline in profit for the second quarter, hurt by 15.5% revenue decline due to lower volumes and the deterioration of the recycling commodities markets. Adjusted earnings per share for the quarter declined 17.5%, and missed analysts' expectations by two cents.
The company also provided earnings forecast for fiscal 2009, below current consensus estimate. Separately, the company announced the change of its ticker symbol on the New York Stock Exchange to 'WM' from 'WMI', effective at the start of trading on Wednesday, August 5, 2009.
In a statement, chief executive officer, David Steiner said, "We performed well in the second quarter, despite continued weakness in volumes and unexpected weakness in natural gas markets, which adversely affected the sales price for electricity from some of our Wheelabrator plants. We also had a negative impact of $0.01 per diluted share from development costs incurred in connection with our expansion of our waste-to-energy business."
Second Quarter Results
The Houston, Texas-based company reported net income of $247 million or $0.50 per share for the second quarter, lower than $318 million or $0.64 per share in the year-ago quarter.
The results for the latest quarter include $6 million or $0.01 per share of charges related to the restructuring announced in February 2009, and $3 million or $0.01 per share charge related to the multi-employer pension withdrawal costs. The year-ago quarter results included a net benefit of $7 million or $0.01 per share related to income tax audit settlements. Excluding items, Waste Management's adjusted net income for the quarter declined to $256 million or $0.52 per share from $311 million or $0.63 per share in the prior-year quarter. On average, 10 analysts polled by Thomson Reuters expected the company to earn $0.54 per share for the second quarter. Analysts' estimate typically excludes one-time items.
The company noted that the results for the latest quarter were negatively impacted by $0.07 per share as a result of the deterioration of the recycling commodities markets that began in late 2008.
The company also noted that the deterioration of the recycling commodities markets compared to last year saw a total negative impact of $0.11 per share on for the latest quarter's results, leaving the earnings per share flat with last year at $0.63 per share.
Operating revenues for the quarter declined 15.5% to $2.95 billion from $3.49 billion in the same quarter last year, and missed six Wall Street analysts' consensus estimate of $3.02 billion.
The decline in quarterly operating revenues include a decline of $207 million due to lower recycling revenues and energy prices, $186 million related to the impact of lower volumes in the solid waste collection and disposal business, $116 million related to the decline in fuel surcharge revenue as oil prices declined, and $28 million due to foreign currency translation.
Internal revenue growth from yield from collection and disposal operations was 3.0%, while internal revenue growth from volume was negative 8.6%.
Among Waste Management's peers, Phoenix, Arizona-based Republic Services, Inc. (RSG) reported on Wednesday a year-over-year surge in profit for the second quarter, boosted by divestiture gains and a more than two-fold surge in quarterly revenues. The revenue surge was helped by contribution from the Allied Waste Industries, Inc. acquisition in December 2008. Net income was $225.9 million or $0.59 per share, sharply higher than $40.7 million or $0.22 per share in the prior-year quarter. Excluding special items, adjusted net income surged to $146.9 million or $0.39 per share from $84.5 million or $0.46 per share in the year-ago quarter. Quarterly revenues soared to $2.07 billion from $827.5 million last year.
Segmental Details
Waste Management's services include collection, solid and hazardous waste landfills, transfer, waste-to-energy facilities and independent power production plants, recycling and other services.
The company noted that its commercial and residential business lines continued to demonstrate recession resistant qualities. Most of the volume weakness was seen at the economically sensitive industrial collection, landfill and transfer businesses. However, the rate of volume decline in these businesses appears to be stabilizing.
Commercial revenue, excluding revenue from fuel surcharge, remained solid, declining only 1.3%, and residential revenue, excluding revenue from fuel surcharge, performed even better, declining only 0.5% from last year.
Revenues for collection business, which forms a major chunk of the company's operating revenues, declined to $2.0 billion from $2.24 billion in the year-ago quarter. Landfill business contributed revenues of $663 million, a decline from last year's $786 million.
Revenue for transfer business decreased to $366 million from $424 million in the prior-year quarter. Wheelabrator business revenues for the quarter slipped to $212 million from $225 million last year. The company's recycling business generated revenues of $165 million, lower than the year-ago quarter's $324 million.
Other Metrics
Income from operations for the second quarter dropped to $534 million from $632 million in the prior-year quarter, while as a percentage of revenues, it was flat with last year at 18.1%. However, adjusted income from operations margin grew 50 basis points to 18.6% form last year.
Operating expenses for the quarter totaled $1.79 billion, about 18.1% lower than $2.18 billion in the year-ago quarter, while as a percentage of revenues, operating expenses decreased 200 basis points to 60.5% from last year. Selling, general and administrative expenses decreased to $323 million from $358 million in the comparable quarter last year.
Capital expenditure for the quarter totaled $258 million, down from $243 million in the year-ago quarter. The company also returned $142 million to shareholders through dividend payments during the quarter. Waste Management ended the second quarter with cash and cash equivalents of $528 million, compared to $210 million at end of the prior-year quarter.
The company also revealed that it decided to resume the share repurchase program, with authority to spend up to $400 million during the remainder of 2009.
In order to cope up with the tough economic conditions, the company announced a reorganization program in February that will cost about $50 million to implement, but will result in annualized savings in excess of $100 million. The implementation of the program resulted in savings of more than $30 million in the second quarter. Consequently, the company currently continues to anticipate annualized savings from restructuring to exceed $120 million. However, the Company incurred a charge of $5 million in the second quarter, which brings the total year-to-date charge related to the program to $43 million.
Under the reorganization program, the company will reduce its market areas to 25 from 45, getting rid of duplicative functions; realign its corporate staff; eliminate calendar year 2009 merit-based salary increases for salaried exempt personnel till there is a turnaround in the economy and business; and postpone its merit-based pay process for hourly personnel to June 30, 2009.
Separately, the company announced the change of its ticker symbol on the New York Stock Exchange to 'WM' from 'WMI', effective at the start of trading on Wednesday, August 5, 2009. The company noted that the new symbol better represents the company's current logo.
Half Yearly Highlights
For the first six months, Waste Management reported net income of $402 million or $0.81 per share, lower than $559 million or $1.13 per share in the year-ago period.
Operating revenues for the year-to-date period declined to $5.76 billion from $6.76 billion in the same period last year.
Looking ahead…………
"Conditions are improving, and we expect to see more modest negative year-over-year impacts from recycling operations in the second half of 2009. For the second half of 2009, we project that the negative impact on earnings per diluted share compared to the prior year, from our recycling operations, will be in the range of $0.02 to $0.04," Steiner added.
The company also added that it expects the rate of declines in volumes in the second half to be consistent with the rate of decline in the second quarter, and see a year-over-year earnings decrease of about $0.04 in the second half of the year due to continued weakness in energy prices at certain of our Wheelabrator plants.
For fiscal 2009, Waste Management currently anticipates the negative impact on earnings per share compared to the prior year, from recycling operations, to be in the range of $0.02 to $0.04, and projects adjusted earnings for the full year in a range of $1.95 to $1.99 per share. Analysts expects the company to report earnings of $2.02 per share for the full year 2009.
Stock Quote
In Thursday's regular trading session, WMI is currently trading at $28.17, down $1.25 or 4.25% on a volume of 2.24 million shares. In the past 52-week period, the stock has been trading in a range of $22.10 to $36.73.
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