Waste Management (NYSE:WM) reported robust Q3 2023 results, with adjusted operating EBITDA growing by over 6% and margin expanding by 100 basis points to 29.6% compared to Q3 2022. The company's solid waste business performed well, meeting expectations, and the firm's strategic investments in sustainability growth are progressing as planned.
Key takeaways from the earnings call include:
- The company's operating EBITDA margin in Q3 2023 was 29.6%, marking a 100 basis point improvement from Q3 2022.
- WM's cash flow from operations for the first three quarters exceeded $3.3 billion, and the company expects to deliver over $4.5 billion of cash from operations for the year.
- Capital spending for sustainability growth projects in 2023 is expected to be about $750 million.
- WM's leverage ratio at the end of the quarter was 2.73 times, within their target ratio of between 2.5 times and 3 times.
- The company is planning to bring four or five renewable natural gas (RNG) facilities online next year.
- WM's pricing strategy is expected to cover cost inflation for the portfolio overall.
In response to a question about unit cost inflation, John Morris, the company's representative, stated that wages have seen a decrease of 5% to 6% in Q3 compared to the double-digit inflation at the beginning of the year. The company aims to maintain its pricing strategy and improve margins through cost optimization efforts.
The company also discussed the delay in sustainability capital spending projects, primarily due to issues related to utility interconnects and permitting. Despite these delays, the company remains confident in its overall project timeline. The executives also mentioned that the Fairless plant in Pennsylvania, their largest project, has been delayed by a couple of months and is now scheduled to open at the end of June.
In terms of financial metrics and strategies, Waste Management secured fixed-rate debt in July 2022 at a coupon of 4.875%. The company expects to see price in the 5% to 6% range going into 2024 and has been focused on cost containment programs to improve its business and customer lifetime value.
During the earnings call, Waste Management executives discussed their expectations for 2024. They mentioned that pricing is expected to remain favorable and focus will be on the middle of the profit and loss statement. They also discussed the impact of the pandemic and unexpected factors on turnover and supply chain, which they have addressed. They anticipate a similar volume but good pricing in 2024, as well as positive year-over-year comparisons for their sustainability businesses and commodity prices.
Lastly, the company sees potential for further improvement in its cost structure as truck deliveries come online and repair and maintenance costs continue to decrease. The company remains confident in achieving their full-year targeted free cash flow of between $2.575 billion and $2.675 billion.
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