Waste Management Announces Second Quarter Earnings

Strong Pricing Leads to Continued Growth in Income from Operations and Income from Operations Margin

Houston — July 29, 2014— Waste Management, Inc. (NYSE: WM) today announced financial results for its quarter ended June 30, 2014.  Revenues for the second quarter of 2014 were $3.56 billion compared with $3.53 billion for the same 2013 period.  Net income (a) for the quarter was $210 million, or $0.45 per diluted share, compared with $244 million, or $0.52 per diluted share, for the second quarter of 2013.  Results in the second quarter of 2014 included approximately $69 million of after-tax charges primarily related to the divestiture of operations in Puerto Rico.  Excluding these impacts, net income would have been $279 million, or $0.60 per diluted share, compared to adjusted earnings per diluted share of $0.54 in 2013.(b)

“Our strong yield and cost controls delivered growth in income from operations, operating EBITDA, and adjusted earnings per share when compared to second quarter 2013 results,” commented David P. Steiner, President and Chief Executive Officer of Waste Management.  “We saw an increase of 40 basis points in our income from operations margin, and 120 basis points on an adjusted basis.  Our yield was 2.3%, marking the fifth consecutive quarter exceeding both 2.0% and CPI.  Our cost of operations improved by $10 million, driven by improvement in our recycling operations, and SG&A costs notched down to 9.9% of revenue.  All of this resulted in an improvement in both our net cash provided by operations and our free cash flow, which were $555 million and $447 million.  Given this strong cash flow performance, we recently entered into an accelerated share repurchase program to return $600 million of our cash flow to our shareholders through share repurchases.” (b)

Key Highlights for the SECOND Quarter 2014 

• Revenue increased by 1.0%, or $35 million; excluding a negative $14 million in foreign currency translation, revenue would have increased 1.4%.
• Internal revenue growth from yield for collection and disposal operations was 2.3%. 
• Core price, which consists of price increases and fees, other than the Company’s fuel surcharge, net of rollbacks, was 3.9%, up from 3.8% in the second quarter of 2013. 
• Internal revenue growth from volume was negative 1.4%, a 40 basis point sequential improvement from the first quarter of 2014.  The loss of several low-margin national accounts represented more than half of the decline.
• Earnings from the Company’s waste-to-energy operations were relatively flat when compared to the prior year period.
• Recycling operations positively affected earnings by approximately $0.01 per diluted share when compared to the prior year period as the Company improved its enforcement of restrictions on contaminated loads and continued to modify the methods for calculating rebates to its customers. This improvement overcame lower average recycling commodity prices of approximately 2.1% compared with the prior year period.
• Operating expenses as a percent of revenue were 64.6% in the second quarter of 2014, as compared to 65.5% in the second quarter of 2013, an improvement of 90 basis points.  Overall operating expenses improved by $10 million compared to the prior year period, primarily driven by improvements in the Company’s recycling operations. 
• SG&A expenses as a percent of revenue were below 10% for the quarter, at 9.9%.
• Net cash provided by operating activities was $555 million.  Capital expenditures were $208 million.  
• Free cash flow increased $100 million to $447 million, despite an increase of more than $70 million in cash taxes. Excluding divestiture proceeds, free cash flow increased $37 million from the prior year to $347 million.  The Company had $100 million of divestiture proceeds in the quarter, primarily related to the sale of its Puerto Rico operations, but taxes on the repatriation of cash from Puerto Rico reduced the cash benefit to the Company.(b) 
• The Company returned $175 million in dividends to shareholders. 
• The effective tax rate was approximately 44.7%, compared to 33.2% in the second quarter of 2013.  The rate was higher than the Company’s expected rate of 35% primarily due to accumulated cash that was repatriated to the U.S. upon divestiture of its Puerto Rico operations. 

Steiner concluded, “Our first half performance shows the strength of our business, and we expect that momentum to continue into the second half.  This will lead to strong free cash flow generation, which we intend to use to strengthen our core business and to return cash to our shareholders.  During the first half of the year we suspended share repurchases while negotiations to sell Wheelabrator were ongoing, but with the proposed sale now announced, we have entered into an accelerated share repurchase program to spend the full amount of our previously announced $600 million authorization on share repurchases over a maximum term of approximately six months.  

“We still anticipate that our full-year yield will be greater than 2.0%, compensating for negative volumes in the second half of 2014.  We also expect to see continued improvement from our cost control programs in 2014.  Our strong performance on these metrics makes us confident that we will meet or exceed our full-year adjusted earnings per share guidance of between $2.30 and $2.35.  These metrics also drive free cash flow, and when we add our discipline on working capital and capital expenditures, we now expect to meet or exceed the high end of our full-year free cash flow target of between $1.4 and $1.5 billion.  Our guidance does not take into account the potential divestiture of our waste-to-energy operations that we announced today.” (b)