• Operating EBITDA Growth: More than 10% in the legacy business for 2024.
• Full-Year Operating EBITDA Margin: Achieved 30% for the first time in company history.
• Collection and Disposal Operating EBITDA Margin: 37.2% for 2024, the highest ever.
• Revenue Growth: Supported by a collection and disposal yield of 4.5% and core price of 6.7%.
• Operating Expenses: 60.7% of revenue for the full year, improved by 100 basis points from 2023.
• Labor Costs: Declined by 60 basis points as a percentage of revenue compared to 2023.
• Driver Turnover: Lowest ever at 15%, improved by over 300 basis points from 2023.
• Free Cash Flow Before Sustainability Investments: $3.27 billion, a 22.5% increase over 2023.
• Cash Flow from Operations: Grew more than 14% to $5.39 billion in 2024.
• SG&A as a Percentage of Revenue: 9.6% for the full year, with a 10-basis-point improvement for the legacy business.
• 2025 Operating EBITDA Growth Expectation: 15% growth, nearly $1 billion increase compared to 2024.
• Capital Expenditures for 2025: Targeted between $3.175 billion and $3.275 billion.
• Free Cash Flow Growth Expectation for 2025: More than 17% to $2.725 billion at the midpoint of the outlook.
• Synergy Capture from Stericycle Acquisition: Expected $250 million over three years, with up to $100 million in 2025.

• Warning! GuruFocus has detected 7 Warning Sign with PH.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Waste Management Inc (NYSE:WM) achieved a record 30% full-year operating EBITDA margin for the first time in its history.
• The company brought five renewable natural gas facilities online, expanding its renewable energy platform.
• WM successfully completed the acquisition of Stericycle, enhancing its suite of environmental services.
• The company reported a 10.4% growth in operating EBITDA in its collection and disposal business in 2024.
• WM's strong operating performance translated into robust cash flow generation, with cash flow from operations growing more than 14% to $5.39 billion.

Negative Points

• WM faces a $63 million headwind from the expiration of alternative fuel tax credits.
• The industrial business remains soft, with no significant rebound expected in 2025.
• The company anticipates increased cash interest expenses, with $350 million to $400 million higher in 2025.
• Recycling commodity prices are expected to be lower in 2025, potentially impacting revenue.
• The integration of Stericycle involves ongoing ERP challenges, with $35 million to $40 million expected in incremental spend for 2025.

Q & A Highlights

Q: Can you clarify the impact of the CNG tax credit headwind and the Stericycle acquisition on your financials? A: Yes, the CNG tax credit headwind is a $63 million impact in dollars and a 30-basis-point impact on margin. Regarding Stericycle, we are including $400 million of incremental EBITDA, which aligns with our Q4 numbers. This includes a definitional change in EBITDA calculation between the two companies, and we expect up to $100 million in synergies for 2025, with a midpoint assumption of $85 million to $90 million.

Q: How does Waste Management plan to achieve the 7% organic EBITDA growth in collection and disposal despite the CNG tax credit headwind? A: The core business has been performing exceptionally well, with growth driven by pricing and cost management. Our pricing team has developed sophisticated strategies, and cost reductions have been significant, particularly in operational expenses. We expect continued growth in the core business, supported by volume improvements and strategic investments.

Q: Can you provide more details on the synergy capture from the Stericycle acquisition? A: The synergy capture is centered around internalization, SG&A, and OpEx. We see larger opportunities in SG&A and OpEx, such as optimizing sales coverage and consolidating recycling capacity. We expect to realize up to $100 million in synergies in 2025, with a total of $250 million over three years.

Q: What is the outlook for the sustainability segment, and how does it contribute to overall growth? A: We expect $190 million in incremental EBITDA from sustainability growth investments in 2025. This includes contributions from renewable natural gas (RNG) and recycling projects. We are confident in the demand for RNG and the positive impact of our recycling automation upgrades, which will drive long-term financial growth.

Q: How is Waste Management addressing potential risks related to commodity price fluctuations in recycling? A: We have implemented a fee-for-service model to create a floor against commodity price declines. Our investments in automation and quality improvements allow us to command price premiums for our products. We expect moderate increases in commodity prices throughout the year, with a focus on maintaining profitability independent of price fluctuations.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.