The United States produces more than 300 million metric tons of municipal solid waste each year. As second-quarter 2019 operating results show, Waste Management (NYSE:WM) is collecting a growing share of it. 

The business reported quarterly revenue of $3.95 billion, marking a more-than-5% increase from the year-ago period that was driven entirely by its collection and disposal services. That's encouraging considering Waste Management has been spending heavily to maintain, modernize, and grow its fleet and landfills. While net income and free cash flow declined year over year due to the increase in capital expenditures, the business generated a healthy $440 million in free cash flow during the quarter.

The strong finish to the first half of the year puts Waste Management on track to reach its full-year 2019 guidance. Here's what investors need to know about the latest operating results.

Four recycling containers, in red, green, yellow, and blue, in a row against a gray brick wall.

Image source: Getty Images.

By the numbers

Waste Management has made organic growth within its collection and disposal unit a core focus recently. A quick look at revenue composition in 2018 shows why that's the case. 

The collection segment generated 54% of total revenue last year, followed by landfill (20%), transfer (10%), and recycling (7%). Meanwhile, 70% of collection revenue was generated from commercial and industrial customers, although they make up only about 6% of total customers. Residential collections drive just 26% of the segment's revenue, but harbor 94% of total customers.  

The composition of the customer base, coupled with the unique needs of each type of customer, provides ample opportunities to maximize efficiency and capture market share. So do several trends in the company's core markets, such as an increased focus on sustainability among consumers and companies, and projections that the United States might face a squeeze in available landfill volumes in the coming decades. Capital investment is needed to capture those opportunities, of course, and Waste Management hasn't been afraid to open the checkbook. Capital expenditures in the second quarter soared to $578 million, an increase of 32% from the year-ago period. The heavy spending sapped operating margin and net income, but the business maintained its resilience. 


First Half 2019

First Half 2018



$7.64 billion

$7.25 billion


Operating expenses

$6.32 billion

$5.93 billion


Operating income

$1.32 billion

$1.32 billion


Operating margin



(100 basis points)

Net income

$728 million

$895 million


Adjusted earnings per share (EPS)




Operating cash flow

$1.90 billion

$1.78 billion


Data source: Waste Management earnings press release.

Waste Management noted that it delivered a record $1.13 billion of adjusted operating earnings before interest, taxes, depreciation, and amortization (EBITDA) in the most recent quarter. That's a mouthful of a metric, and it's non-GAAP (which means investors should interpret it with care), but it's a pretty solid indicator of the operational health of an asset-heavy business such as the refuse leader.

That said, adjusted metrics do tend to hide certain things. For example, management told investors the business is experiencing weaker-than-expected commodity prices, which are weighing down the recycling business. That's expected to sap an extra $0.01 to $0.02 off full-year 2019 EPS compared to previous expectations.

Despite that headwind, management expects the ramping up of investments in collection and disposal to drive growth that more than offsets weakness in the recycling segment. That trend gave management the confidence to double down on full-year 2019 guidance. Investors can still expect Waste Management to generate adjusted EPS of $4.33 at the midpoint, adjusted operating EBITDA of at least $4.4 billion, and free cash flow of about $2.05 billion.

A strong first half

The strong operating performance in the first half of 2019 should give investors confidence that Waste Management is on track to meet its near- and long-term goals. The business is on pace to deliver on its full-year 2019 guidance and is so far reaping rewards from its heavy investments in collection and disposal services. 

While the 32% year-over-year increase in capital expenditures in the second quarter certainly stands out, it represented an increase of just $142 million. The expense did eat into net income, but the well-run business has the financial strength to divert cash today for growth tomorrow. Besides, if management is accurately identifying shifting trends in municipal solid waste and recycling markets, then the investments made today should keep paying dividends for years to come once they enter service.