Waste Management, Inc. Earnings: Price Increases Drive Profits Higher

By Joe TenebrusoFool.com

Image source: Waste Management.

Waste Management(NYSE: WM) announced third-quarter financial results on Oct. 27, 2015. The aptly named leading provider of waste-management services inNorth America continues to turn trash into cash for its investors.

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Operating resultsRevenues declined 6.7%, to $3.36 billion, but most of the decline was related to businesses that Waste Management sold during the last year, with foreign currency fluctuations and lower recycling and fuel charge revenue also taking a toll. Overall volume declined 1.4% in the third quarter as the company continues to refuse to sacrifice its margins in order to increase sales.

But volumes appear to be stabilizing, with internal revenue growth from volume in Waste Management's traditional solid-waste business declining 0.1% in Q3 2015, an improvement of 180 basis points versus a decline of 1.9% in Q3 2014. This was also a 50-basis-point sequential improvement from the 0.6% decline in Q2 2015.

Management expects volumes to trend upward into 2016, with CEO David Steiner commenting: "Internal revenue growth from volumes has improved each quarter since the first quarter of 2015, and we expect them to continue to strengthen into 2016 with our continued focus on adding higher margin volumes, and avoiding volume growth at below market rates."

Management's pricing discipline was also apparent in the 4% improvement in core pricing relative to the year-ago period, which helped drive a 1.8% year-over-year increase in internal revenue growth from yield for collection and disposal operations. However, low commodity prices remain troublesome, with average recycling commodity prices down 15% in Q3 2015 compared to the prior-year period. In addition, recycling volumes declined 6.4% in the third quarter. Fortunately, operational improvements were able to offset these declines.

Excluding divestitures, operating expenses as a percent of revenue improved140 basis points, to 62.4%, in the third quarter, as lower fuel and subcontractor costs, reduced commodity rebates, and continued route optimization boosted results. That helped adjusted net income (excluding restructuring and other nonrecurring charges) rise 7.7% year over year. And adjusted earnings per share, boosted by share buybacks, rose 10.4%.

Cash flow and capital-return programWaste Management's cash generation remained strong in the third quarter, with net cash provided by operating activities totaling$657 million, and free cash flow coming in at$358 million. That allowed Waste Management to return $472 millionto shareholders during the quarter, including$300 millionin share repurchases, and$172 millionin dividends.

What management had to say"Our third quarter results reflect the impact of our continued commitment to core price, disciplined growth, and cost controls, all of which are driving improvement in our key operating metrics," said Steiner in a press release. "Each of our net income, operating income and margin, operating EBITDA and margin, and earnings per diluted share improved when compared to the third quarter of 2014."

Looking forwardThanks to Waste Management's solid performance so far this year, management now expects to exceed the upper end of its previous guidance, with Steiner saying:

With the pricing power that Waste Management enjoys, thanks to its irreplaceable network of landfills and recycling centers, and with volume trends looking as if they could once again become a source of growth for this wide-moat company in the year ahead, it's easy to see why management is so optimistic.

The article Waste Management, Inc. Earnings: Price Increases Drive Profits Higher originally appeared on Fool.com.

Joe Tenebruso has no position in any stocks mentioned. The Motley Fool owns shares of Waste Management. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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