Waste Management : 1Q 2025 Transcript

Published: 2025-04-29 20:25:48 ET WM

29-Apr-2025

Waste Management, Inc. (WM)

Q1 2025 Earnings Call

Ed Egl

Vice President-Investor Relations & Financial Analysis, Waste Management, Inc.

James C. Fish, Jr.

President, Chief Executive Officer & Director, Waste Management, Inc.

John J. Morris

Executive Vice President & Chief Operating Officer, Waste Management, Inc.

Devina A. Rankin

Executive Vice President & Chief Financial Officer, Waste Management, Inc.

Rafael Carrasco

Senior Vice President, Enterprise Strategy & President, WM Healthcare Solutions, Waste Management, Inc.

Tara J. Hemmer

Senior Vice President & Chief Sustainability Officer, Waste Management, Inc.

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Bryan Burgmeier

Analyst, Citigroup Global Markets, Inc.

Kevin Chiang

Analyst, CIBC World Markets, Inc.

Patrick Tyler Brown

Analyst, Raymond James & Associates, Inc.

Trevor Romeo

Analyst, William Blair & Co. LLC

Sabahat Khan

Analyst, RBC Capital Markets

Toni Michele Kaplan

Analyst, Morgan Stanley

Noah Kaye

Analyst, Oppenheimer & Co., Inc.

Konark Gupta

Analyst, Scotiabank

Tobey Sommer

Analyst, Truist Securities, Inc.

Jerry Revich

Analyst, Goldman Sachs & Co. LLC

David John Manthey

Analyst, Robert W. Baird & Co., Inc.

James Schumm

Analyst, TD Cowen

Stephanie Moore

Analyst, Jefferies LLC

I will now hand the conference over to your first speaker today, Ed Egl, Vice President of Investor Relations. Please go ahead.

Ed Egl

Vice President-Investor Relations & Financial Analysis, Waste Management, Inc.

Thank you, Olivia. Good morning, everyone, and thank you for joining us for our first quarter 2025 earnings conference call. With me this morning are Jim Fish, President and Chief Executive Officer; John Morris, Executive Vice President and Chief Operating Officer; and Devina Rankin, Executive Vice President and Chief Financial Officer. We will hear prepared comments from each of them today. Jim will cover high-level financials and provide a strategic update. John will cover an operating overview, and Devina will come the details of the financials.

Before we get started, please note that we have filed a Form 8-K that includes the earnings press release and is available on our website at https://www.wm.com. The Form 8-K, the press release and the schedules of the press release include important information.

During call, you will hear forward-looking statements, which are based on current expectations, projections or opinions about future periods. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Some of these risks and uncertainties are discussed in today's press release and in our filings with the SEC, including our most recent Form 10-K and Form 10-Qs.

John will discuss our results in the areas of yield and volume, which unless stated otherwise, are more specifically references to internal revenue growth or IRG from yield or volume. During the call, Jim, John and Devina will discuss operating EBITDA, which is income from operations before depreciation and amortization. References to WM legacy business are total WM results, excluding the WM Healthcare Solutions segment.

Any comparisons, unless otherwise stated, will be with the prior-year period. Net income, EPS, income from operations and margin, operating EBITDA and margin, operating expense and margin and SG&A expense and margin have been adjusted to enhance comparability by excluding certain items that management believes do not reflect our fundamental business performance or results of operations. These adjusted measures, in addition to free cash flow, are non-GAAP measures. Please refer to the earnings press release and tables, which can be found on the company's website at https://www.wm.com for reconciliations to the most comparable GAAP measures and additional information about our use of non-GAAP measures.

This call is being recorded and will be available 24 hours a day beginning approximately 1:00 p.m. Eastern Time today. To hear a replay of the call, access the WM website at https://www.investors.wm.com. Time-sensitive information provided during today's call, which is occurring on April 29, 2025, may no longer be accurate at the time of a replay. Any redistribution, retransmission or rebroadcast of this call in any form without the expressed written consent of WM is prohibited.

Now I'll turn the call over to WM's President and CEO, Jim Fish.

James C. Fish, Jr.

President, Chief Executive Officer & Director, Waste Management, Inc.

Okay. Thanks, Ed, and thank you all for joining us. The WM team again delivered quarterly results that exceeded our expectations. The one thing I'm most proud of over the past few years is that we've truly become a predictably strong performer on a quarter-in and quarter-out basis. So once again, I'm pleased to report that we had a strong start to the year with first quarter results exceeding our expectations on several fronts.

Total company operating EBITDA grew by more than 12% in the in the first quarter compared to the first quarter of 2024, driven by solid operational performance in the collection and disposal business, meaningful contributions from WM Healthcare Solutions and increases in our sustainability businesses largely related to our growth investments.

Our momentum so far, as well as our demonstrated operational execution and the strength and resiliency of our business model gives us confidence in our ability to achieve all of our financial guidance we outlined last quarter.

Our focus remains on growing customer lifetime value, while leveraging technology to optimize our cost structure, delivering on our strategic investments in sustainability and extracting increased value from our acquisition investments. At a time when the US workforce is aging and shrinking, moving quickly to deploy technology to supplement our workforce could prove to be a significant differentiator for WM.

At the same time, the leadership position we've taken with our very profitable sustainability investments is positioning the WM brand to be synonymous with sustainability and is not easily matched by our competitors. Of course, we continue to identify opportunities to scale the core business through acquisitions. We have a very robust pipeline of tuck-in opportunities and anticipate another outsized year of solid waste M&A.

Turning to our sustainability businesses in Q1, combined operating EBITDA from recycling and renewable energy grew by over 20% year-over-year, keeping us on track to meet full year targets. Automated recycling facilities delivered nearly double the operating EBITDA margin compared to our non-automated facilities. We added two new facilities in California and Texas with seven more next-gen recycling plants scheduled to come in 2025.

In renewable energy, growth was fueled by new RNG plants we brought online in late 2024 and strong pricing for natural gas and renewable electricity. We're currently advancing construction on eight additional RNG facilities that are all on track for completion this year. The strategy is working as our investments in sustainability are delivering strong, high-return growth. During the first quarter, we also made significant progress in our integration of WM Healthcare Solutions into the broader WM organization.

Our new customers are excited by the expanded level of environmental expertise that WM brings to their organizations, including an industry-leading reporting and analytics platform and an unmatched asset network that will help healthcare industry customers manage and track their waste streams more efficiently.

We continue to focus on identifying and capturing synergies and are on track to achieve $250 million of annual run rate synergies in 2027. We're very pleased with the progress we've made in a short period of time and are excited about the long-term value we're creating.

In closing, I want to thank our employees for their dedication and hard work. Your efforts drive our success, and we're grateful for your commitment. Looking ahead, I'm excited about the opportunity to share more about our strategic priorities and long-term vision at our upcoming Investor Day in June. We hope you'll join us in New York or tune in to the event via the webcast.

I'll now turn the call over to John to discuss our operational results.

John J. Morris

Executive Vice President & Chief Operating Officer, Waste Management, Inc.

Thanks, Jim, and good morning. The first quarter further demonstrates the consistent progress we made in our core collection and disposal business. Through our focus on customer lifetime value and optimization of our cost to serve, we again grew both operating EBITDA and margins in the quarter.

First quarter operating EBITDA for the collection and disposal business was up almost 5% and margin expanded 10 basis points. We achieved this growth in what we knew would be the most challenging quarter from a comparison standpoint. The success is particularly impressive when you consider the impacts of tough winter weather in our Southeast and Gulf Coast regions during the quarter and the expiration of the alternative fuel tax credits.

Revenue has once again grown across all lines of business, driven by collection and disposal yield of 4% and core price of 6.5%, with churn remaining stable at around 9%. We continue to achieve solid pricing across all of our revenue streams. Commercial collection, transfer stations and landfill core price were particularly strong in the quarter, as we continue to leverage data-driven decision-making to offer pricing that reflects the value of our service, the strength of our asset network and our commitment to providing differentiated customer solutions.

Regarding volumes, our first quarter collection and disposal results were flat on a workday-adjusted basis. Positive landfill and commercial collection volumes were offset by our strategic exit from low-margin residential business, as well as continued economic pressure on the temporary segment of our industrial business. While the California wildfire cleanup positively impacted our special waste volumes in Q1, these gains were largely offset by impacts of winter weather events I mentioned earlier.

Overall, we remain confident in our volume outlook for 2025 because our special waste pipelines remain strong, service intervals remain positive, and we expect fire volumes in Southern California to continue through at least the end of the third quarter.

Turning to operating costs and margin. Q1 marked our sixth consecutive quarter with operating expenses as a percentage of revenue below 61%. We delivered operating expenses at 60.5% of revenue, which is a 40-basis point improvement from Q1 of 2024.

Our commitment to the operating fundamentals of the WM Way continues to drive margin improvement. The first quarter's performance was driven by focusing on frontline retention and the use of automation and technology to drive efficiency and operating improvements. The investments we have made in our people, including human center and leadership, coaching, and facility upgrades continue to deliver improved driver retention, with Q1 seeing an 80 basis point improvement compared to the prior-year period.

When retention improves, it benefits safety, customer service and efficiency. We also continue to create an optimized cost to serve with the ongoing adoption of automation and technology, including routing and resource planning tools.

Cost optimization focuses, combined with targeted contract renegotiations and the intentional shedding of low-margin customers in the residential line of business continued to deliver strong results. This is evident in our first quarter operating EBITDA margin in the residential line of business, which grew more than 130 basis points,

Disclaimer

Waste Management Inc. published this content on April 29, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on April 30, 2025 at 00:25 UTC.