What's In Store For Waste Management (WM) In Q1 Earnings?

Waste Management, Inc. (NYSE:WM) is scheduled to report first-quarter 2017 results before the opening bell on Apr 26. In the last reported quarter, earnings missed the Zacks Consensus Estimate by 2 cents. Nevertheless, Waste Management has a decent earnings surprise history, beating estimates thrice in the trailing four quarters with a positive average surprise of 3.02%.

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

Waste Management is refocusing on its core business activities to instill price and cost discipline for better margins. The company is working on improving customer retention by providing better services and higher value solutions. It has also taken prudent steps to divest non-core operations and focus on high-growth areas that will generate higher cash flows and boost the top line.

In addition, Waste Management's successful cost-reduction initiatives helped it in accomplishing remarkable gross margin expansion and EBITDA (earnings before interest, tax, depreciation and amortization) growth. In order to generate adequate return on its capital investments in landfills, the company implemented an additional wastewater management charge for customers. This is likely to augment its revenues further.

However, Waste Management’s recycling operations process certain recyclable materials like fibers, aluminum and glass, all of which are subject to significant market price fluctuations. Decline in average recycling commodity prices and recycling volumes are likely to have a negative year-over-year impact on earnings.

The company expects volumes to be down due to lower national counts as it strives for improved margin growth and pricing. The pricing environment also remains challenging and highly competitive due to aggressive bidding by smaller competitors. The company needs to improve margins on the recycling side through adjustment of rebates to reflect lower pricing and needs to improve the quality of inbound material to boost profitability.

Earnings Whispers

Our proven model does not conclusively show that Waste Management is likely to beat earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: Earnings ESP, which represents the difference between the Most Accurate estimate of 62 cents and Zacks Consensus Estimate of 66 cents, is -6.06%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Waste Management, Inc. Price and EPS Surprise

Waste Management, Inc. Price and EPS Surprise | Waste Management, Inc. Quote

Zacks Rank: Waste Management has a Zacks Rank #3. While this increases the predictive power of ESP, we need to have a positive ESP to be confident about an earnings surprise.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

Panera Bread Company (NASDAQ:PNRA) has an Earnings ESP of +1.09% and a Zacks Rank #3.

Pinnacle Foods Inc. (NYSE:PF) , with an Earnings ESP of +2.17% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Treehouse Foods, Inc. (NYSE:THS) , with an Earnings ESP of +4.62% and a Zacks Rank #2.

More Stock News: This Is Bigger than the iPhone!

It could become the mother of all technological revolutions. Apple (NASDAQ:AAPL) sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.

Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2020. Click here for the 6 trades >>