Waste Management reports recovery in recycling volumes, prices

Waste Management Inc cited volume growth and increased commodity prices in Q2 2021 as drivers of the recycling business's best ever financial performance, the company said July 27.

In the company's collection and disposal (C & D) business volumes climbed 9.6% in the quarter, exceeding company expectations and vastly improving from the 10.3% decline seen in Q2 2020.

North America's largest recycler is hopeful that continued strong demand for recyclables will bring further economic recovery to the sector in H2 2021.

A robust recovery in the company's commercial, industrial, and landfill operations drove the strong quarterly performance as those sectors saw the largest improvements in volume.

"In the second quarter, commercial and municipal solid waste volume reached pre-pandemic levels, and industrial volumes recovered to levels just shy of those before the pandemic," said Executive VP and COO John Morris.

Morris added that although volumes were shown to be recovering at a healthy pace, there is still room for improvement in certain areas such as the business, industrial, and special waste sectors as education and offices have yet to fully recover. Additionally, specific geographies that are not fully reopened, such as Canada, reported slow volume growth.

"I think [C&D and special waste streams] by themselves, which tend to be kind of the most forward-looking indicators for us, are the best barometer overall of not only our business going forward but maybe even the North American economies," added Fish.

INCREASED COMMODITY VALUES DRIVE BULLISH OUTLOOK

In addition to volume recovery, increased market values for recycled commodities, which were just above $100/ton on a mixed basis in Q2, also contributed to the company's quarterly revenue growth. Waste Management's guidance for the second half of the year suggests a commodity price of a little over $117/ton, bringing the full-year outlook to an average of $104/ton, according to Executive VP and CFO Devina Rankin.

The company expects recycled commodity prices to follow a longer-term bullish trend amid a permanent shift in the marketplace, specifically for old corrugated cardboard and containers and plastics, as more companies partake in sustainability initiatives and prioritize ESG investments.

As a result of companies increasing their use of recycled material in packaging over the last few years, demand has pivoted away from overseas exports and towards the domestic market, especially after China's National Sword policies came into effect in early 2018, said James Fish, the company's president and CEO.

"While it didn't feel like that at the time, it was probably a good thing that we ultimately lost our biggest customer in recycling, which was China a couple of years ago, because it's now moved [demand] back state-side and is more predictable," said Fish.

LABOR SHORTAGES

Despite such strong Q2 results, the company said the quarter was not without its challenges as supply chain and labor constraints continued to impact business operations nationwide and created cost inflation.

The company is hopeful that the labor issue will start to improve in early September when some federal benefits are scheduled to end.

Waste Management is also making significant investments in automation. These investments so far have proven effective as the company's labor costs at automated facilities were 35% lower in the second quarter compared to other single-stream material recovery facilities.

Technology advancements have also allowed the company to start separating specific plastics that were previously sold as a bundled lower-priced bale, which helps to increase overall commodity values as demand for recycled material grows.

In Q2 2021, the company reported $351 million in net income, up 14.3% from $307 million in the year-ago period, and the company generated $1.5 billion in free cash flow in the first half of the year, according to the company's second-quarter earnings call.