WM keeps profits rolling in Q1

Houston-based waste and recycling firm WM has reported a nearly 5 percent increase in net income in the first quarter of this year compared with a year ago. The company says its collection and disposal yield rose, but its recycling operations suffered from a drop in commodity prices.

“Our performance to start 2023 delivered results in line with our expectations, keeping us on track to achieve the full-year guidance provided at the end of January,” WM President and CEO Jim Fish says. “In the first quarter, our teams executed well, delivering organic revenue growth in the collection and disposal business of 7 percent."

WM's collection and disposal yield was 6.2 percent in the first quarter compared with 5.5 percent in the first quarter of 2022.

The recycling market was not as kind to WM in the first three months of this year. WM says operating earnings before interest, taxes, depreciation and amortization (EBITDA) in its recycling business unit declined by $42 million compared with the first quarter of 2022, which were “largely in line with expectations.”

“The decline [in recycling EBITDA] was primarily driven by the approximately 60 percent decrease in market prices for single-stream recycled commodities," the company adds.

WM's operating EBITDA in its renewable energy business declined by $20 million compared with the first quarter of 2022, primarily driven by decreases in the value of renewable fuel standard credits and lower energy prices.

Those declines were joined by modest gains in materials collection and disposal. “Collection and disposal volumes increased 1.1 percent, or 0.8 percent on a workday adjusted basis, compared to 4.2 percent in the first quarter of 2022, or 3.8 percent on a workday adjusted basis," WM says.

Across all operations, inflation was a factor, according to WM. The firm cites an increase in operating expense margin in the first quarter when compared with the prior year, which it says was “primarily due to wage increases, the impact of inflationary cost pressures on repair and maintenance and subcontractor costs and margin dilutive impacts from recently closed acquisitions.”

Looking ahead, Fish says, “As we move into the second quarter, where we begin to see the seasonal uptick in our business, we remain laser-focused on our three top priorities for the year—cost management and leveraging technology and automation to drive permanent cost reductions, disciplined pricing and execution on our sustainability growth investments.”

Despite the inflationary pressure and commodity value constraints, at least one industry analyst sees reasons for optimism when looking at WM’s results.

In a late April note to customers, Michael E. Hoffman, managing director of St. Louis-based Stifel Financial Corp., says that firm is raising its rating of WM stock from “hold” to “buy,” setting a target price of $177 per share.

“Buoyed by better-than-plan price, the prospect for margins to swing positive and catching the commodity cycle near a low supports revising our rating from ‘hold’ to ‘buy,’” Stifel writes. “While guidance does assume a recovery in all things commodities, even if [renewable energy and recycled commodity prices] do not recover, a better price/cost relationship supports the rating change.”