Waste Management has released financial results for the quarter ending June 30, 2022.
"In the second quarter, we exceeded expectations as our team delivered outstanding results, building on our first quarter momentum and positioning us to increase our full-year financial outlook," said Jim Fish, WM's President and Chief Executive Officer. "Exceptionally strong organic revenue growth, combined with diligent management of our costs, translated into an almost 8 percent increase in adjusted operating EBITDA in the second quarter. I am proud of how our team continues to diligently manage costs in this inflationary environment while remaining focused on advancing our long-term strategic priorities of providing the best workplace for our employees, investing in technology and automation that differentiates WM and permanently reduces our cost structure, and leveraging our sustainability platform for growth."
Fish continued, "During the quarter, we achieved two exciting milestones in our sustainability growth journey. We brought our fifth WM-owned and operated renewable natural gas plant into service in Oklahoma, which is expected to generate about 570,000 MMBtu of RNG and progresses us towards the 21 million MMBtu planned increase in RNG generation by 2026. We also completed technology and automation upgrades at our materials recovery facility in Houston, which keeps us on track to deliver on our planned recycling investments."
Key highlights for the second quarter of 2022
Revenue
Core price for the second quarter of 2022 was 7.5 percent compared to 6.2 percent in the second quarter of 2021.
Collection and disposal yield was 6.2 percent in the second quarter of 2022 compared to 3.7 percent in the second quarter of 2021.
Total company volumes increased 1.6 percent in the second quarter of 2022 and collection and disposal volumes increased 2.3 percent. Total company and collection and disposal volumes increased 9.2 percent in the second quarter of 2021 driven largely by strong recovery from the pandemic.
Cost management
Operating expenses as a percentage of revenue increased 140 basis points to 62.5 percent when compared to the second quarter of 2021. On an adjusted basis, operating expenses as a percentage of revenue increased 130 basis points to 62.4 percent in the second quarter of 2022.
Operating expense margin in the second quarter, when compared to the prior year, was 100 basis points higher due to the impacts of higher commodity prices for fuel and recyclables and 30 basis points higher related to alternative fuel tax credits received in the prior year that have not yet been renewed for 2022.
SG&A expenses were 9.7 percent of revenue in the second quarter of 2022 compared to 9.9 percent in the second quarter of 2021. On an adjusted basis, SG&A expenses were 9.4 percent of revenue in the second quarter of 2022 compared to 9.6 percent in the second quarter of 2021.
Profitability
Operating EBITDA in the company's collection and disposal business, adjusted on the same basis as total Company operating EBITDA, increased by approximately $107 million to $1.53 billion for the second quarter of 2022. Operating EBITDA as a percentage of revenue in the company's collection and disposal business was 31.2 percent for the second quarter of 2022 compared to 32.0 percent for the second quarter of 2021.
Operating EBITDA in the company's recycling line of business increased by $5 million compared to the second quarter of 2021.
Operating EBITDA in the company's renewable energy business increased by $14 million compared to the second quarter of 2021, primarily driven by increases in the value for electricity, renewable natural gas and environmental credits.
Free cash flow and capital allocation
In the second quarter of 2022, net cash provided by operating activities was $1.05 billion compared to $1.04 billion in the second quarter of 2021.
In the second quarter of 2022, capital expenditures to support the business were $485 million compared to $387 million in the second quarter of 2021. In addition, capital expenditures for sustainability growth investments were $65 million compared to $9 million in the second quarter of 2021.
In the second quarter of 2022, free cash flow was $503 million compared to $649 million in the second quarter of 2021. Free cash flow without sustainability growth investments was $568 million compared to $658 million in the second quarter of 2021.The year-over-year decline in free cash flow was primarily driven by the timing of capital spending.
During the second quarter of 2022, $539 million was returned to shareholders, including $269 million of cash dividends and $270 million allocated to share repurchases.
2022 Outlook
Total company revenue growth in 2022 is expected to be approximately 10 percent, an increase of 400 basis points from the midpoint of prior guidance. Combined internal revenue growth from yield and volume in the collection and disposal business is now expected to approach 8.5 percent.
Adjusted operating EBITDA is now expected to be between $5.5 and $5.6 billion in 2022, an increase of $175 million from prior guidance.
The company's projected adjusted operating EBITDA margin at the midpoint of its guidance range is 28.1 percent, which includes an estimated 60-basis-point headwind related to increased fuel costs.
Free cash flow is projected to exceed the upper end of the company's previous guidance range of $2.6 to $2.7 billion excluding the targeted sustainability growth investments, or $2.05 to $2.15 billion including sustainability growth investments.
The company expects to complete between $300 and $400 million of acquisitions in 2022. The company's revenue and operating EBITDA guidance provided above exclude incremental contributions from acquisitions.
The company expects to repurchase an additional $980 million of its common stock in 2022, exhausting the full $1.5 billion of share repurchase authorization previously announced.
Fish concluded, "WM is well positioned in any economic environment given the essential nature of the services we provide, the annuity-like characteristics of our revenue, and our reliable business model. Our solid results in the first half of 2022, driven by our focus on disciplined pricing and cost management, give us confidence in our ability to deliver on our new, higher outlook."
