Waste Management share prices hit an all-time high Tuesday ($54.49) on the news that its earnings beat Wall Street estimates by 8 cents per share on slightly lower fourth-quarter sales revenues ($3.44 billion versus $3.49 billion one year earlier).

Houston, Feb. 17 – Waste Management, Inc. today announced financial results for the fourth quarter and for the year ended December 31, 2014. Revenues for the fourth quarter of 2014 were $3.44 billion compared with $3.50 billion for the same 2013 period. Net income   for the quarter was $590 million, or $1.28 per diluted share, compared with a net loss of $605 million, or a negative $1.29 per diluted share, for the fourth quarter of 2013. On an as-adjusted basis, excluding certain items, net income would have been $308 million, or $0.67 per diluted share, in the fourth quarter of 2014 compared with $263 million, or $0.56 per diluted share, in the fourth quarter of 2013.

The Company’s as-adjusted fourth quarter 2014 results excluded a tax affected $0.61 per diluted share impact primarily from a gain on sale of the Company’s waste-to-energy business offset in part by charges to impair certain assets.

For the full year 2014, the Company reported revenues of $14.00 billion compared with $13.98 billion for 2013. Earnings per diluted share were $2.79 for the full year 2014 compared with $0.21 for the full year 2013. On an as-adjusted basis, excluding certain items, earnings per diluted share were $2.48 for the full-year 2014 versus $2.15 for the full-year 2013.

David P. Steiner, President and Chief Executive Officer of Waste Management commented, “We built strong momentum during the first three quarters of 2014, and that momentum continued into the fourth quarter. Our strong pricing and cost controls delivered growth in our traditional solid waste business as income from operations grew $36 million and income from operations margin rose by 130 basis points compared to the fourth quarter of 2013. In addition, operating EBITDA in the traditional solid waste business grew by $25 million and operating EBITDA margins expanded by 100 basis points.  For the seventh consecutive quarter, our yield was at least 2.0 percent and volumes improved sequentially for the fourth consecutive quarter. Our cost of operations improved by $97 million and as a percent of revenue improved 170 basis points compared to the prior year fourth quarter.

“In looking at the full year, we are very pleased with our overall operating results as we grew income from operations, operating EBITDA, income from operations margin, and operating EBITDA margin in our traditional solid waste business. At the beginning of the year, we expected to grow earnings and free cash flow, increase price, and have more discipline around SG&A costs and capital spending. We had strong performance in each of these areas and we anticipate building upon that strength in 2015.”

KEY HIGHLIGHTS FOR THE FOURTH QUARTER 2014 AND THE FULL YEAR 2014

Revenue in the fourth quarter decreased by 1.8 percent , or $63 million, but would have been slightly up if not for a $48 million decline related to divestitures of certain operations and an $18 million decline related to foreign currency translation adjustments. For the full year, revenue increased by 0.1 percent , or $13 million, and would have increased $164 million if not for a $90 million decline related to divestitures of certain operations and a $61 million decline related to foreign currency translation adjustments. Foreign currency translation negatively affected full year adjusted earnings per share by a negative $0.02 per diluted share.

Internal revenue growth from yield for collection and disposal operations was 2.0 percent for the fourth quarter and 2.3 percent for the full year.

Core price increases, which consist of price increases and fees (excluding fuel surcharges), net of rollbacks, were 3.9 percent for the fourth quarter, flat when compared to the fourth quarter of 2013, and were 4.0 percent for the full year compared to 3.8 percent for the full year 2013.

Internal revenue growth from volume was negative 0.8 percent for the fourth quarter, a sequential improvement from a negative 1.3 percent in the third quarter. For the full year, internal revenue growth from volume was negative 1.4 percent .

Recyclable commodity prices had a negative $0.03 per diluted share effect on the quarter, but were more than offset by benefits from operational improvements in the recycling line of business. Overall, recycling operations positively affected earnings by $0.01 per diluted share in the fourth quarter when compared to the fourth quarter of 2013, despite an average OCC commodity price decline of 23.7 percent .

Operating expenses improved by $97 million in the fourth quarter and $110 million for the full year. In both the fourth quarter and full year, the majority of the savings were for costs associated with recently divested businesses. We also saw meaningful benefits from our focus on flexing down costs and reduced fuel expense.

SG&A expenses were relatively flat in the fourth quarter and were 10.9 percent of revenue compared to 10.7 percent in the prior year period. We realized significant savings from our restructuring during the quarter, but the benefits were largely offset by long-term incentive compensation accruals and certain legal reserves and fees. Without these accruals, SG&A expenses as a percent of revenue would have been 10.3 percent .  For the full year, SG&A expenses were 10.6 percent of revenue compared to 10.5 percent in the prior year. Adjusting for the same fourth quarter accruals and third quarter legal reserves, SG&A expenses were 10.2 percent of revenue for 2014.

In the fourth quarter, net cash provided by operating activities was $520 million and capital expenditures were $370 million. For the full year 2014, net cash provided by operating activities was $2.33 billion and capital expenditures were $1.15 billion.

Free cash flow was $2.1 billion in the fourth quarter; for the full year 2014 free cash flow was $3.4 billion. The Company sold several assets and over-paid approximately $210 million of 2015 cash taxes in 2014. Without these affects, free cash flow would have been $360 million for the fourth quarter and approximately $1.4 billion for the full year.

The Company returned $172 million to shareholders in dividends during the fourth quarter of 2014. For the full year, the Company returned $1.29 billion to shareholders, consisting of $693 million in dividends and $600 million in common stock repurchases.

The recorded effective tax rate was approximately 0.3 percent in the fourth quarter and 23.6 percent for the full year. The rates were lower than the Company’s expected rate of 35 percent primarily due to tax implications of divestitures, which are reflected in the $0.61 per diluted share that was excluded from our as-adjusted results. We did include in our as-adjusted earnings per share a $0.02 tax benefit from adjustments to accruals and related deferred taxes and audit settlements that also lowered our effective rate. Adjusting the Company’s recorded rate for all of these items, the tax rate was approximately 33 percent.

2015 OUTLOOK

The Company announced the following with regard to its financial outlook for 2015:

Adjusted earnings per diluted share are expected to be between $2.48 and $2.55, an increase of between 8 percent and 11 percent when 2014 is adjusted for divestiture earnings.

Free cash flow for 2015 is projected to be between $1.4 and $1.5 billion excluding any proceeds from divestitures. Proceeds from divestitures are expected to be between $50 and $100 million.

Internal revenue growth from yield on the collection and disposal business is expected to be 2.0 percent and internal revenue growth from volume is expected to be between a negative 0.5 percent to flat.

Core price is expected to be approximately 3.8 percent for 2015.

Recycling operations improvements are not expected to keep pace with recent recycling commodity price declines such that the recycling line of business is estimated to be between a negative $0.03 and $0.05 per diluted share headwind in 2015 compared to 2014, assuming no further degradation in the prices of commodities.

SG&A expenses as a percent of revenue are expected to be below 10 percent for the full year.

The tax rate is expected to be approximately 36.0 percent .

Capital expenditures are expected to be approximately $1.2 to $1.3 billion.

The Board of Directors has indicated its intention to increase the dividend by $0.04 to $1.54 per share on an annual basis, for an approximate annual cost of $700 million. The Board must separately declare each dividend.

The Board of Directors has authorized a share repurchase program of up to $1 billion.

Steiner continued: “In 2014 Waste Management’s goals were to continue our focus on price growth and cost controls, while improving our core solid waste business. We met those goals, and that focus led us to exceed our original full year adjusted earnings per share and free cash flow guidance. Our free cash flow is strong, at $3.4 billion for the year. If we exclude the sale proceeds and an approximate $210 million overpayment of cash taxes, our free cash flow was about $1.4 billion.

“In 2014, we completed the divestiture of our waste-to-energy assets and solid waste operations in Puerto Rico and Eastern Canada. Those assets accounted for about $0.18 of diluted earnings per share and approximately $230 million of operating EBITDA in 2014. In 2015, we expect to be able to enter into acquisition agreements to replace most, if not all, of that amount. We will be disciplined in our approach to buying assets, and believe we can replace the operating EBITDA of our recent divestitures and still have significant proceeds from our Wheelabrator divestiture to apply to other accretive priorities, including share buy backs or tuck-in acquisitions. Combined with our strong free cash flow, we believe that we can apply significant funds to these areas, while maintaining a strong balance sheet.

“With respect to acquisitions, given the time necessary to identify targets, negotiate agreements and get any necessary regulatory approvals, our guidance assumes that we will not close any acquisitions in 2015 other than the previously announced acquisition of Deffenbaugh Disposal and our normal tuck-in acquisitions.

“We expect to begin to repurchase shares once we have determined the amount of proceeds that will be applied to acquisitions. We should know that by mid-year. So, in the second half of the year we will likely enter the market to buy shares, and we expect to purchase at least enough shares to offset any dilution in 2015.”

Steiner concluded, “So, 2015 will be a transition year in which we continue our pricing and cost efforts while focusing on redeploying the Wheelabrator proceeds. In our solid waste business, we have targeted about 10 percent earnings growth in 2015 and another year of strong free cash flow growth. We plan to redeploy Wheelabrator proceeds in 2015, setting the stage for accelerated earnings and free cash flow growth in 2016.”