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Yield and Volume Gains Fuel Waste Management, Inc. Earnings

By Joe Tenebruso - May 4, 2016 at 6:00PM

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After a multi-year decline, the garage king's collection volumes returned to growth in the first quarter.

Image Source: Waste Management.

Waste Management (NYSE: WM) announced first-quarter financial results on April 28. The aptly named provider of waste management services hauled in higher profits as its collection volumes grew on a year-over-year basis for the first time since 2012.

Revenues rose 4.5%, to $3.2 billion, including growth of 1.9% from higher collection volume, 0.5% from average yield, and 3% from acquisitions, partially offset by divestitures (-0.3%) and foreign-exchange movements (-0.6%). In addition, Waste Management's pricing power was again on display in the first quarter, with core price improving 5.3% versus the year-ago period. However, low commodity prices remain troublesome, with average recycling prices down 12% versus Q1 2015.

Operating expenses, as a percent of revenue, declined to 62.8% from 64% in the prior-year period, as Waste Management progressed with its cost-cutting initiatives. That helped net income rise 13.7% (from Q1 2015's adjusted results), to $258 million. And earnings per share, boosted by share buybacks, jumped 18.4%, to $0.58. 

Most importantly, Waste Management continues to turn cash into trash for its investors. Operating and free cash flow exceeded $700 million and $400 million in Q1, and management returned more than $400 million to shareholders in the form of dividends and share repurchases during the quarter.

"We achieved strong first-quarter results and exceeded our internal targets in virtually every metric, including revenue, earnings, margins, and cash flow," said CEO David Steiner in a press release.

Looking forward
The company expects to "meet or exceed" its full-year 2016 guidance for adjusted EPS in the range of $2.74 to $2.79, and free cash flow of between $1.5 billion and $1.6 billion. With this strong cash-flow generation, and a wide competitive moat built upon a network of irreplaceable landfill assets, Waste Management is well positioned to reward investors with rising dividend payouts and profit-fueled share price appreciation for many years to come.

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