Waste Management 1Q15 Earnings Call Notes

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Wont overpay for assets

“On the acquisition front, we continue to have discussion with sellers, but we’ll remain disciplined and not overpay for assets. If we cannot identify core businesses to acquire at reasonable prices, we’ll buy the business that we know the best, ours, by doing a share buyback. Even if we do identify acquisition targets at reasonable prices, we will still purchase at least enough shares to offset dilution and we’ll begin buying those shares in the second quarter.”

Apparently we generate more trash in the summer

“As we move through the second quarter and see the seasonal upturn, we expect to see continued improvement in our volumes. Combined with our focus on cost and pricing, this should lead to continued growth in earnings and free cash flow.”

Improving volumes in profitable lines

“seeing improving volumes in our most profitable lines of business. We’re seeing declining volumes in our less profitable lines of business like recycling and residential.”

Residential is competitive

” I think residential has always been a very competitive line of business. Look, those are big contracts, big slugs of revenue, and generally, you’ve got a lot of different bidders. So, there’s always been aggressive players on the residential side. Frankly, I would say that we’re seeing a little bit of more stability on the residential side, as folks that have taken those low-margin contracts from us over the last few years start to realize they can’t make a lot of money on them.”

CPI affects pricing

“I don’t think that we’ll see a significant change in CPI. But when we look at our pricing programs, we try to look at them holistically, and if CPI is lower, then we just have to get those dollars from somewhere else. And so if we get a bump from CPI, that would be great. But if we don’t get that bump, we’re just going to have to pull those dollars from somewhere else, and that’s what we’ve been doing the last few years, and that’s what we’ll do this year.”

Weak commodity prices impact recycle volumes

“as we’ve talked a lot about this morning, the negative revenue impact of recycle commodity prices and recycle volumes. And that was a negative $70 million”

Customers need to realize that we need to get paid for recycling

“I think that’s what customers need to realize is that we’re not the only ones rationalizing assets. The industry is rationalizing assets. And unless we can work out a way where recycling is profitable over the long term, there’s not going to be recycling. And customers certainly don’t want to live with that. So, we just need to make sure that the customers understand that if they want glass recycled, we need to get paid for it. We actually lose or we lost in the quarter $6 million by recycling glass. Long term that cannot be sustainable for Waste Management. So, we need to work with the customers to get them to understand the mix issues, to understand the commodity markets so that we can make a long term viable business out of recycling.”

We’ll live up to the contract, but we’re not going to be there when it ends

Most of these contracts are long-term contracts and – look, it’s a long-term contract; we signed the contract. We will live up to the contract. But what they need to realize is we’ll live up to that contract, but we’re not going to be there when the contract ends, and nobody’s going to be there when the contract ends.”

There’s one business that we know best and that’s ours

“As we’ve got into deeper discussions with sellers, we found out that some of them had bigger timing issues than we thought and some of them have higher pricing expectations than we thought.

And so – look, that doesn’t mean that we ultimately won’t buy those businesses, but it might mean that it’s going to take us longer to buy those businesses, and if that’s the case, then we do need to be out in the market buying back our stock because, look, as I said, that’s the business we know the best. We’re never going to pay a multiple higher than our own multiple because there’s one business we know real well and that’s ours.”