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Waste Management CFO: Our divided policy is ‘rock solid’ despite COVID-19

Waste Management Executive VP & CFO Devina Rankin joins Yahoo Finance’s Zack Guzman to break down the company's second quarter earnings beat.

Video Transcript

ZACK GUZMAN: This morning, we got an update from Waste Management, though. I want to dig into those results here on the show. Revenue and net income both down slightly compared to the second quarter of last year revenue came in at $3.56 billion compared with $3.95 billion for the same period in 2019. Net income in at $307 million or $0.72 per diluted share.

And here for more on what that meant for the company as well as the outlook ahead is Devina Rankin, Waste Management executive VP and CFO. Devina, appreciate you taking the time. I want to dig into the fact that you guys also gave the guidance here on total revenue for the year expect to decline between 4% and 5% compared to last year.

On the earnings call, you also said that you are seeing things maybe accelerate in July, albeit at a slower pace as more states kind of roll back these reopenings. So what are you seeing play out right now as, of course, your business, just like all the other ones we're talking about here, reacting to what you're seeing in the COVID-19 environment?

DEVINA RANKIN: Yeah, I think what's most important when you think about our business, we're an essential service. That means the men and women on the front line are showing up each and every day. And we're just dynamically adjusting to the changes that we're seeing in the market and with our customers.

You know, the outlook for the full year, a 4% to 5% decline in revenue, tells you that we see a pretty healthy rebound from the trough that we saw in April. And Q2 revenue was down almost 10%. And so being able to cut that back to effectively half for the full-year outlook is a sign of what we're seeing as good strength.

You know, I'm sure everyone is focused on states like Florida, Arizona, Texas, California. Those states, what's interesting in our business is we didn't see as dramatic a decline in commercial volumes, as an example, as we did in the Northeast. And so while their rate of recovery might be slowing, they still had really strong performance relative to the rest of the country on the whole.

ZACK GUZMAN: Yeah, I mean, you know, the backdrop of a 33% GDP decline, a 4% to 5% drop in total revenue, just putting that into perspective, I guess, in terms of what you're seeing. But when we do talk about the two important key aspects of the business, right, price and volume, you guys kind of talked about this on the earnings call in terms of pausing price increases, small business owners going through a lot right now. You didn't want to see their bills go up in a pandemic. And I get that.

But as businesses might take longer to get back to normal, I guess, how confident would you be in seeing this kind of snapback over the next two quarters here to wrap up the year that you might be able to get back to a place where you would see price increases?

DEVINA RANKIN: Our confidence is based on what we're seeing and hearing from our customers. Customer centricity and customer engagement are what's key. And we have tremendous line of sight into what's causing our customers to make decisions. And while container weights, as an example, are one of the things that we're paying attention to, some of this comes down to customers feeling strong enough in their own conviction about the health of their business to be able to reopen doors.

And the trends that we're seeing is, while they may have a slower pace from an overall recovery perspective, overall business cancellation is still only at about 2 and 1/2 percent of the total volume change that we saw overall in the commercial line of business. And that bodes well for, I think, that confidence that you spoke to for the back half of the year.

ZACK GUZMAN: Yeah, and just a real quick follow on that front, I guess, too-- because, obviously, a lot is unpredictable in the environment, right? We've been talking about that. For you guys, one thing that is always there, labor costs are important in terms of your guys's overall costs, as well. I know you've been focused on reducing overtime. You guys have also been pretty responsible in the cash flow front in trying to preserve that flexibility there, freezing share buybacks.

You still pay the dividend, though. So, I mean, I guess the question becomes, out there for investors who like hiding out in a Waste Management, like what they get from the company in terms of being recession proof and seeing the business operate now, what would be kind of the emergency or worst-case scenario here that you would need to see play out in the back half of this year, maybe even in 2021, that might actually make you guys start thinking about even shifting your dividend policy?

DEVINA RANKIN: Oh, our dividend policy is solid, rock solid. And I would tell you there's not any view that I could see playing itself out, either in the back half of the year or in 2021, that changes that expectation for long-term growth and viability of the dividend. We maintain dividends at about 40% to 50% of free cash flow. And we think, even with the headwind that COVID-19 has created in the current economic environment, we're going to continue to see nice, healthy growth in that dividend over the long term.

ZACK GUZMAN: All right, well, appreciate you bringing the updates to us here on this show. Obviously, I know you guys are very busy right now. But Waste Management executive VP And CFO Devina Rankin. Appreciate the time.