Image source: Waste Management.
After Waste Management (NYSE: WM) reported its first-quarter results, its leadership team shared some important information with investors during the conference call. Here are the key takeaways for long-term shareholders.
1. Waste Management is benefiting from a powerful combination of volume growth, price increases, and cost controls.
Our first-quarter results continued the positive trends that we saw throughout 2015, and our volumes turned positive more quickly than we had originally planned. We also saw the continued strength in our pricing programs, and our cost programs continue to gain traction. This focus on disciplined growth, pricing, and continuous cost improvement delivered $0.58 per share in the quarter, an increase of more than 18% from our 2015 first-quarter results.
-- David Steiner, president and CEO
Waste Management's pricing power allows it to consistently raise its fees. In the first quarter, collection and disposal core price improved 90 basis points year over year to 5.3%. Impressively, Waste Management's pricing power appears to be strengthening, with the company seeing the highest core price ever in its commercial, industrial, and landfill businesses. When combined with its disciplined cost-control initiatives, these price increases are helping to fuel margin expansion and earnings growth.
2. Volumes are the strongest they've been in years.
Our revenue increased for the first time since 2014, and we achieved positive volumes for the first time since 2012.
-- Steiner
Even after adjusting for an additional workday, Waste Management's internal revenue growth from volume grew 1.3% in the first quarter. That's particularly noteworthy because -- as can be gleaned from the improvements in core price and profit margins -- these volume gains do not appear to have been achieved by chasing less-profitable business. Rather, Waste Management is focusing on adding volumes in geographic areas and lines of business where economic growth is strongest, which is allowing it to grow while maintaining its pricing discipline.
3. However, recycling remains troublesome.
Turning to recycling, we saw a drop of 12% in average commodity prices for the quarter and a 3.1% increase in volumes. The positive volumes are [predominantly] due to the unusually low broker volumes that we saw in the first quarter of 2015, associated with the slowdown in Western U.S. ports. This should normalize and will likely be negative in the second quarter, so we don't expect to see recycling volumes contributing to our overall volume growth.
-- Steiner
Waste Management is trying to offset the negative impact of lower commodity prices by shedding unprofitable recycling contracts and slashing operating costs. The company has also implemented an educational campaign to inform customers as to what should and should not be recycled. Done effectively, these efforts could go a long way toward making recycling more sustainable for Waste Management, the communities it serves, and the environment as a whole.
4. Waste Management remains a cash-generating machine.
Turning to cash flow for the first quarter, our operating EBITDA growth of almost 10% translated into strong cash flow growth. Cash provided by operating activities was $706 million, a $207 million increase compared to the first quarter of 2015.
-- Jim Fish, executive vice president and CFO
Waste Management's irreplaceable network of landfills, transfer stations, and recycling centers comprise a wide competitive moat that helps to insulate its cash flows. The garbage titan's cash-generating ability was again on display in the first quarter, with free cash flow rising to $402 million, an increase of $117 million from the year-ago period. Even better, Waste Management is now on pace to exceed its full-year free cash flow guidance of between $1.5 billion and $1.6 billion.
5. And management is committed to passing on that cash to investors.
In the first quarter, we returned $433 million to shareholders. We paid $183 million in dividends and we repurchased $250 million of shares.
-- Fish
Waste Management plans to allocate at least $600 million to share buybacks this year, which will help to further increase per-share earnings by reducing the amount of shares outstanding. The company also recently raised its dividend, an annual trend that began in 2004 and should continue for the foreseeable future. And with rising volumes now helping to propel organic earnings growth higher, Waste Management appears poised to reward its investors with a profitable mix of income and share price appreciation in the years ahead.
