Waste Management, Inc. (WM) reported fourth-quarter earnings of 52 cents per share, above the Zacks Consensus Estimate of 48 cents and prior-year earnings of 49 cents per share. The year-over-year growth was primarily driven by the company’s cost cutting efforts. 

Net sales decreased 3.3% to $3.01 billion from $3.11 billion in the prior-year quarter. Lower Volumes had a negative impact of 6.4% on the company’s internal revenue growth in the quarter, while yield on collection and disposal business contributed 2.7% to the internal growth. Excluding revenue from our fuel surcharge, commercial revenue and residential revenue increased 1.0% and 1.5%, respectively, compared to the fourth quarter of 2008. 

Operating expenses declined 5.0% to $1.87 billion or 62.3% of revenue in the fourth quarter of 2009 from $1.97 billion or 63.4% of revenue in the fourth quarter of 2008, reflecting the company’s ability to adjust costs in response to declining volumes. 

SG&A expenses declined 4.5% year over year to $365 million primarily due to the company’s restructuring efforts. As a result, operating income (excluding unusual items) increased to $493 million or 16.4% of revenue, from $457 million or 14.7% of revenue in the prior-year quarter. 

For the full year 2009, Waste Management reported earnings of $2.00 per share on revenues of $11.79 billion compared to earnings of $2.22 per share on revenues of $13.39 billion in 2009. The company exceeded its targeted savings of $120 million on an annualized basis from its restructuring program announced in February 2009. However, this could not fully offset the impact of lower revenues on earnings. 

The company provided 2010 earnings guidance in the range of $2.09–$2.13 per share. This guidance is based on expectations of internal revenue growth of 2.5% to 3.0% from yield and internal revenue growth of negative 1.0% to 3.0% from volume. Recycling commodity prices are expected to have a favorable impact of 1–3 cents per share on 2010 earnings. 

Waste Management generated free cash flow of $1.2 billion 2009 and targets $1.2–$1.3 billion for 2010. 

We have a Neutral rating on the stock.
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