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By the numbers
Q2 net income: $615M
Up 4.8% year over year
Q2 recycling revenue: $370M
Down 20.9% YOY. CFO Davina Rankin said slow-recovering commodity prices are a major reason WM updated its full-year outlook.
- Ecomonic outlook: WM CEO Jim Fish said the company delivered “solid results” in Q2 despite a mix of inflation, lower-than-anticipated renewable energy prices, lower event volumes and a slow recovery in commodity prices. “We are well-positioned to deliver strong growth in the back half of the year as these pressures abate,” he said.
- Pricing: WM executives said the company’s “disciplined” pricing strategy is helping keep pace with rising costs and counteract other headwinds. One “bright spot” is the 5.8% organic revenue growth in the collection and disposal business, said Chief Operating Officer John Morris. That growth was led by core price increases of 6.9% for the quarter compared with 7.5% in the second quarter of 2022.
- Volume: Volumes are at or above company expectations, though “the mix of volumes across our businesses is different than we planned,” Fish said. Cleanup volumes from Hurricane Ian in Florida were much lower than expected, which had a $9 million operating earnings impact for the quarter, said Rankin. Total company volumes and collection and disposal volumes each increased 0.2% in the second quarter of 2023 compared with 1.6% and 2.3%, respectively, in Q2 2022. MSW volumes had a “standout” quarter with an increase of almost 4%.
- Commodities: WM initially set a 2023 blended commodity price outlook of $70 a ton for 2023, but Q2 blended prices were closer to $60. Tara Hemmer, chief sustainability officer, expects that $60-a-ton price to linger throughout the year. Fiber pricing is expected to ramp up slowly due to more mill capacity coming online, but recycled plastic commodity prices declined between 30% and 55% from May to July due to competition from virgin resin, she said.
- Capital expenditures: Recycling facility improvements are expected to offset some costs due to labor and throughput efficiencies, Hemmer said. In Q2, WM finished technology and automation upgrades at its recycling facility in Surprise, Arizona. It also opened a new recycling facility in the greater Toronto area. However, other sustainability projects are facing construction and permitting delays, meaning capital spending in 2023 will be about $200 million lower than previously budgeted, Rankin said.
- RNG investments: WM recently opened a renewable natural gas facility at a landfill in Springdale, Arkansas, the second of the company’s planned 20 projects. Hemmer estimates about 10 of those projects will be under construction by 2024. WM sees the U.S. EPA’s recent Renewable Fuel Standard updates as adding “visibility and stability” to the market for credits, and it anticipates higher demand for renewable natural gas as a transportation fuel.
- Updated outlook: WM is “modestly” revising its full-year outlook, which Rankin said is “entirely related” to commodity price woes, lower event-driven volumes and lower-than-expected revenue contributions from recycling acquisitions. Total revenue growth expectations are now between 3.25% and 4.25%. Operating EBITDA contributions from the recycling and renewable energy businesses are expected to be between $115 million and $135 million lower than they were in 2022. WM originally expected a year-over-year decline in these categories of $70 million to $100 million.
- M&A approach: WM has a “nice pipeline of M&A opportunities,” Fish said, but valuations have “crept up a bit” in recent months as more waste businesses indicate plans to sell, leading WM to hesitate on price tags it believes could be too high. “It doesn't mean we're not going to do acquisitions, but I think we're going to be disciplined about how we go about that,” Fish said. In May, GFL Environmental sold WM its hauling assets in Nashville, Tennessee.
