It has been about a month since the last earnings report for Waste Management (WM). Shares have added about 2.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Waste Management due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Waste Management Surpasses Q4 Earnings, Revenue Estimates
Waste Management delivered better-than-expected fourth-quarter 2018 results.
Adjusted earnings per share came in at $1.13, which beat the consensus mark by 6 cents and rallied 32.9% year over year. Total revenues of $3.84 billion surpassed the consensus mark by $55 million and improved 5.2% year over year.
The year-over-year improvement was mainly driven by strong yield and volume growth in the collection and disposal business, which contributed $203 million of incremental revenues. Revenues from recycling business increased $18 million in the quarter.
Internal revenue growth from yield for collection and disposal operations was 2.3% compared with 2.2% in the year-ago quarter.
Traditional solid waste internal revenue growth from volume came in at 3.1% or 2.4% on a workday adjusted basis. Total company internal revenue growth from volume, which includes recycling and other ancillary businesses, was 4.7% or 4% on a workday adjusted basis.
Quarterly Numbers in Detail
The Collection segment recorded revenues of $2.49 billion, up 5.9% from the prior-year quarter’s tally. Landfill segment’s top line increased 3.5% year over year to $914 million. Total revenues in the Transfer segment were up 13.8% to $454 million. The same in the Recycling segment increased 9.4% to $339 million. Other businesses’ revenues totaled $440 million, up 1.6% year over year.
Adjusted operating EBITDA was $1.09 billion, up 7.2% from the year-ago quarter’s level. Adjusted operating EBITDA margin improved 50 basis points (bps) to 28.4%.
Waste Management exited the fourth quarter with cash and cash equivalents of $61 million compared with $83 million at the end of the third quarter. Long-term debt at the end of the quarter was $9.6 billion, flat year over year.
The company generated $912 million of cash from operating activities and spent $454 million in capital expenditures. Free cash flow was $560 million compared with $344 million in the prior-year quarter.
The company paid dividends worth $197 million and repurchased shares worth $254 million in the fourth quarter. It spent $118 million on acquisitions of solid waste businesses during the reported quarter.
Waste Management expects adjusted EPS in the range of $4.28-$4.38. Internal revenue growth from yield on the collection and disposal business is anticipated to be more than 2.0%. Internal revenue growth from volume is expected to be approximately 2.0%. Adjusted operating EBITDA guidance range is $4.40-$4.45 billion. Free cash flow is expected between $2.025 and $2.075 billion.
How Have Estimates Been Moving Since Then?
Analysts were quiet during the last two month period as none of them issued any earnings estimate revisions.
At this time, Waste Management has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Waste Management has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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