Waste Management (WM) Down 15.2% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Waste Management (NYSE:WM). Shares have lost about 15.2% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Waste Management due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Waste Management Surpasses Q4 Earnings Estimates, Lags Revenues

Waste Management reported mixed fourth-quarter 2019 results, wherein earnings surpassed the Zacks Consensus Estimate but revenues lagged the same.

Adjusted earnings per share of $1.19 beat the consensus mark by 1.7% and were up 5.3% year over year. Total revenues of $3.85 billion missed the consensus estimate by 2.6% but increased slightly year over year.

The top line benefited from growth in the company’s collection and disposal business, which contributed $88 million of incremental revenues.

Internal revenue growth from yield for collection and disposal operations was 3.2% compared with 2.3% in the year-ago quarter. Collection and disposal business internal revenue growth from volume was a negative 0.6%. Total company internal revenue growth from volume, which includes recycling and other ancillary businesses, was a negative 0.4%.

Quarterly Numbers in Detail

The Collection segment recorded revenues of $2.59 billion, up 3.9% from the prior-year quarter’s figure. Landfill segment’s top line increased 5.7% year over year to $966 million. Total revenues in the Transfer segment were up 2% to $463 million. Recycling segment revenues declined 29.2% to $240 million. Other businesses’ revenues totaled $413 million, down 6.1% year over year.

Adjusted operating EBITDA of $1.12 billion increased 2.6% from the year-ago quarter’s level. Adjusted operating EBITDA margin improved 70 basis points (bps) year over year.

Operating income came in at $655 million compared with $767 million in the year-ago quarter. Operating income margin decreased to 17% from 20% in the year-ago quarter.

Waste Management exited fourth-quarter 2019 with cash and cash equivalents of $3.56 billion compared with $2.92 billion at the end of the prior quarter. Long-term debt was $13.28 billion compared with $13.15 billion at the end of the prior quarter.

The company generated $1.02 billion of cash from operating activities and capital expenditure was $286 million. Free cash flow was $756 million compared with $478 million in the prior-year quarter.

The company paid out dividends worth $218 million in fourth-quarter 2019. It spent $9 million on acquisitions of solid waste businesses during the reported quarter.

2020 Guidance

Waste Management expects adjusted operating EBITDA of $4.56-$4.66 billion. Internal revenue growth from volume is expected to be around 1.5%. Free cash flow is anticipated between $2.15 billion and $2.25 billion.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, Waste Management has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Waste Management has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.