Waste Management (WM)

Waste management services provider Waste Management (NYSE:WM) fell short of the market’s revenue expectations in Q1 CY2025, but sales rose 16.7% year on year to $6.02 billion. Its non-GAAP profit of $1.67 per share was 5.2% above analysts’ consensus estimates.

Company Overview

Headquartered in Houston, Waste Management (NYSE:WM) is a provider of comprehensive waste management services in North America.

Waste management companies can possess licenses permitting them to handle hazardous materials. Furthermore, many services are performed through contracts and statutorily mandated, non-discretionary, or recurring, leading to more predictable revenue streams. However, regulation can be a headwind, rendering existing services obsolete or forcing companies to invest precious capital to comply with new, more environmentally-friendly rules. Lastly, waste management companies are at the whim of economic cycles. Interest rates, for example, can greatly impact industrial production or commercial projects that create waste and byproducts.

Competitors operating in the waste management sector include Republic Services (NYSE:RSG), Casella Waste Systems (NASDAQ:CWST), and Stericycle (NASDAQ:SRCL).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Waste Management’s 8.2% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Waste Management’s annualized revenue growth of 7.2% over the last two years aligns with its five-year trend, suggesting its demand was consistently weak.

This quarter, Waste Management’s revenue grew by 16.7% year on year to $6.02 billion but fell short of Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 13.1% over the next 12 months, an improvement versus the last two years. This projection is particularly noteworthy for a company of its scale and suggests its newer products and services will catalyze better top-line performance.

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Waste Management’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 38.5% gross margin over the last five years. That means Waste Management only paid its suppliers $61.51 for every $100 in revenue.

Waste Management’s gross profit margin came in at 39.4% this quarter, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Waste Management has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.3%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, Waste Management’s operating margin rose by 1.6 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Waste Management generated an operating profit margin of 16.8%, down 2.9 percentage points year on year. Since Waste Management’s operating margin decreased more than its gross margin, we can assume it was less efficient because expenses such as marketing, R&D, and administrative overhead increased.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Waste Management’s EPS grew at a solid 10.3% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

We can take a deeper look into Waste Management’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, Waste Management’s operating margin declined this quarter but expanded by 1.6 percentage points over the last five years. Its share count also shrank by 5.3%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Waste Management, its two-year annual EPS growth of 12.9% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Waste Management reported EPS at $1.67, down from $1.75 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 5.2%. Over the next 12 months, Wall Street expects Waste Management’s full-year EPS of $7.15 to grow 8.1%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Waste Management has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.8% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Waste Management’s margin dropped by 6.4 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Waste Management’s free cash flow clocked in at $377 million in Q1, equivalent to a 6.3% margin. The company’s cash profitability regressed as it was 7.6 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Waste Management’s five-year average ROIC was 12.8%, higher than most industrials businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Waste Management’s ROIC has stayed the same over the last few years. Rising returns would be ideal, but this is still a noteworthy feat since they're already high.

Waste Management reported $216 million of cash and $23.84 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $6.75 billion of EBITDA over the last 12 months, we view Waste Management’s 3.5× net-debt-to-EBITDA ratio as safe. We also see its $700 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see Waste Management beat analysts’ EPS expectations this quarter. On the other hand, its revenue slightly missed. Overall, this was a weaker quarter. The stock remained flat at $228 immediately following the results.

Updated: May 21, 2025 at 11:23 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Waste Management, you should also grasp the company’s longer-term business quality and valuation.

Waste Management has some positive attributes, but it isn’t one of our picks. First off, its revenue growth was decent over the last five years and is expected to accelerate over the next 12 months. And while Waste Management’s cash profitability fell over the last five years, its impressive operating margins show it has a highly efficient business model.

Waste Management’s P/E ratio based on the next 12 months is 30.3x. This valuation tells us a lot of optimism is priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $244.67 on the company (compared to the current share price of $233.59).

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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