Waste Management Jumps on 'Exceptional' Earnings, Strong 2018 Guidance

Waste Management Inc. (WM - Get Report) rose on Thursday, Feb. 15, after posting top- and bottom-line beats for a fiscal fourth quarter that concluded what the company's chief called the best year in its history, and issuing upbeat guidance for 2018.

The Houston-based company tallied adjusted earnings of 85 cents a share in the fourth quarter of 2017, up from 75 cents in the last three months of 2016 and above Wall Street estimates of 83 cents.

Fourth-quarter revenue was $3.65 billion, up 5.5% from $3.46 billion a year earlier. Analysts expected revenue of $3.57 billion. Waste Management said in a statement that strong yield and volume growth were the primary drivers of the uptick.

For the full year, Waste Management reported $14.5 billion in revenue, up 6.4% from $13.6 billion a year earlier. Analysts were looking for $14.39 billion in revenue for the full year.

Full-year earnings came in at $3.22 a share, up from $2.91 in 2016. Full-year earnings joined fourth-quarter earnings in beating analysts' expectations by 2 cents.

"The strong results that we saw through the first nine months of 2017 continued into the fourth quarter as we saw organic revenue growth continue to translate into operating EBITDA growth," said Jim Fish, Waste Management CEO, in a statement. "Looking at the full year, 2017 was exceptional for Waste Management as our continued focus on improving core price, adding profitable volume in a disciplined manner, and controlling costs led to arguably the best year in the company's history."

Shares of Waste Management rose 0.9% to $83.37 at 11:30 a.m. EST. The stock had risen by as much as 5.9% in premarket trading on Thursday.

On a technical basis, Waste Management's stock looks ready to rally, said Bruce Kamich, a technical analyst for TheStreet's sister publication, Real Money.

"It looks like WM can rally back and retest its January highs," Kamich said. The stock reached $89.69 a share on Jan. 26.

"Waste Management is a proxy on construction," TheStreet founder Jim Cramer said Thursday on CNBC. "Construction is strong and a great way to read it is loan growth, a better way to read it is Waste Management, and it's good, real good."

Looking ahead, Waste Management said it expects revenue growth from yield on the collection and disposal business to be 2% or more and revenue growth from volume to be between 2% and 2.2% in 2018.

Earnings from the company's recycling business are expected to decline from record-high levels seen in 2017. Adjusted earnings are expected to come in between $3.97 a share and $4.05 a share for full-year 2018, above analysts' expectations of $3.68 a share.

Management also anticipates that operating Ebitda to be between $4.2 billion and $4.25 billion for the year, which is above estimates of $4.17 billion.

Waste Management said its new effective tax rate following December's passage of the Tax Cuts and Jobs Act will be about 26%. The company plans to use a portion of the related cash savings to pay approximately $65 million in employee bonuses to about 34,000 workers.

"Over the next five to 10 years, we will have an intense focus on the customer and their needs, and how do we differentiate ourselves," Fish told TheStreet last month. "Secondarily is technology. Everybody talks about technology, but this industry has been technology-light. It's an opportunity for us."

"Part of what jazzes me up over the next five to 10 years is that we have a great business model. Recycling and trash don't go away, it is a business that has such a great presence," Fish said. "It may not be the sexiest business in the world, it's not building jet airlines or an Apple Inc. or a Google, but investors don't really care if it's sexy."

Waste collection and disposal may not be the most attractive business, Cramer said in a Feb. 15 note to AAP subscribers, "but the strength in Waste Management's numbers proves that it is a business that is trending in a positive direction because the company is an excellent play on construction."

Waste Management is holding in Jim Cramer's Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells WM? Learn more now.

-- This story has been updated to include commentary from Jim Cramer.

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