Waste Management, Inc. Earnings Cheat Sheet: Margins Suffer as Costs Rise, Profit Falls

S&P 500 (NYSE:SPY) component Waste Management, Inc. (NYSE:WM) reported its results for the second quarter. Waste Management, Inc. is a provider of integrated waste services in North America. It provides collection, transfer, recycling, disposal and waste-to-energy services.

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Waste Management Earnings Cheat Sheet for the Second Quarter

Results: Net income for the waste management company fell to $237 million (50 cents per share) vs. $246 million (51 cents per share) a year earlier. This is a decline of 3.7% from the year earlier quarter.

Revenue: Rose 6% to $3.35 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: WM fell short of the mean analyst estimate of 55 cents per share. Analysts were expecting revenue of $3.34 billion.

Quoting Management: David P. Steiner, Chief Executive Officer of Waste Management, commented, “Our revenue continued the recent trend of year-over-year growth, increasing 6% compared with the second quarter of 2010, primarily because of higher commodity prices, improving recycling volumes, and collection and disposal yield.”

“Recycling remained a significant contributor to earnings, and we continued to generate robust cash from operations, with $478 million of cash from operations in the quarter. In the first half of the year we made significant investments in our growth initiatives and cost reduction programs. These initiatives are largely performing according to our plans, and we expect to see the associated benefits in the third quarter and accelerating in future quarters.”

“Internal revenue growth from volume declined by 1.7% in the second quarter of 2011. We expected to see stronger improvement during the second quarter, and we did see improved volumes in the first weeks of the quarter; but volumes hit a soft patch in May and June. Volumes look to be improving slightly in July, but given our first half volumes, we now expect to see volumes in the negative 1.5% to negative 2.5% range for the year.”

Steiner continued, “Our internal revenue growth from yield for our collection and disposal operations was 1.6%. It would have been close to 2.0% if not for weakness in two areas, Florida and the Gulf Coast. Both areas saw weakness in residential pricing related to large municipal contracts, and the Gulf Coast had a negative year-over-year comparison primarily related to last year’s oil spill project. In Florida we also had a shift in the mix of our roll-off volumes that negatively affected yield.”

Key Stats:

Gross margin shrank 0.7 percentage point to 36.1%. The contraction appeared to be driven by increased costs, which rose 7.2% from the year earlier quarter while revenue rose 6%.

Revenue has risen the past four quarters. Revenue increased 5.7% to $3.1 billion in the first quarter. The figure rose 6% in the fourth quarter of the last fiscal year from the year earlier and climbed 7% in the third quarter of the last fiscal year from the year-ago quarter.

The company has now fallen short of estimates in the last two quarters. In the first quarter, it missed expectations by 2 cents with net income of 39 cents versus a mean estimate of net income of 41 cents per share.

Net income has dropped 4.9% year over year on average across the last five quarters. Performance was hurt by an 11.9% decline in the third quarter of the last fiscal year from the year earlier quarter.

Competitors to Watch: Republic Services, Inc. (NYSE:RSG), Waste Connections, Inc. (NYSE:WCN), Stericycle, Inc. (NASDAQ:SRCL), WCA Waste Corporation (NASDAQ:WCAA), Casella Waste Systems Inc. (NASDAQ:CWST), Perma-Fix Environmental Services, Inc. (NASDAQ:PESI), Clean Harbors, Inc. (NYSE:CLH), Veolia Environnement (NYSE:VE), US Ecology Inc. (NASDAQ:ECOL), and Avalon Holdings Corp. (AMEX:AWX).

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(Source: Xignite Financials)