Waste Management sees FY23 revenue growth 3.25%-4.25%, consensus $20.66B

With half of the year complete, the company is updating its full-year outlook to modestly adjust its expectations for 2023. The revised financial outlook considers first half results relative to plan as well as a change in outlook for the second half of the year primarily due to expectations for slower recycled commodity price recovery and lower event-driven volumes. Total company revenue growth is expected to be between 3.25% and 4.25%, which is lower than prior expectations by 100 basis points at the midpoint. This revision is largely related to the sustainability businesses where electricity and natural gas prices are lower than expected and recycled commodity prices are now expected to be lower during the second half of the year than initially planned. Further, revenue contributions from recycling acquisitions are evolving at a slower pace than expected. WM‘s core price outlook remains strong at between 6.5% and 7.0%. Conversion of core price to yield is exceeding expectations and the company now expects collection and disposal yield to exceed 5.5%. The company’s overall collection and disposal volume outlook is unchanged and expected to be flat to 2022, though stronger volume contributions are expected from the company’s strategic accounts business while event-driven landfill volumes are developing slower than planned. Adjusted operating EBITDA is expected to be between $5.775 and $5.875 billion in 2023, which is below prior expectations by $75 million, or about 1%, at the midpoint, with about half of the decline attributed to the sustainability businesses and the remainder due to lower event-driven volumes. Pricing and cost optimization efforts remain on track to deliver targeted improvement in adjusted operating EBITDA margin of at least 40 basis points for the year. At the midpoint of the guidance range, adjusted operating EBITDA margin is expected to be 28.5%, an increase of 50 basis points compared to 2022. The operating EBITDA contributions from the recycling and renewable energy businesses are expected to be between $115 and $135 million lower than 2022, which compares to the company’s original outlook of a year-over-year decline of $70 to $100 million. Free cash flow is projected to be between $1.675 and $1.775 billion, which is above prior expectations by $175 million at the midpoint. The increase in free cash flow is primarily driven by lower-than-expected capital spending on sustainability growth investments due to a delay in the timing of certain construction projects. Free cash flow excluding targeted sustainability growth investments is expected to be between $2.575 and $2.675 billion, essentially in line with prior guidance. “As we move into the back half of 2023, we remain focused on cost optimization, efficiency improvements, and solid execution on pricing to overcome top-line pressures from lower recycling commodity prices and slower than expected event-driven volumes. We expect this focus to continue to translate into strong margin expansion,” Fish concluded.